ABA and several other trade groups yesterday released a statement of principles on “super-priority” liens placed by homeowner associations that in some states have been recognized as senior even to claims by first-lien mortgage holders. The principles come in response to cases in states like Nevada, where courts have allowed HOAs to foreclose on homes when HOA dues are in arrears, extinguish the first-lien mortgage, and sell homes for a fraction of their value.
The groups declared their support for protecting the priority of first liens secured at origination over any subsequent liens. “We are opposed to policy initiatives that seek to give priority lien status to one private party ahead of another private lienholder that has followed proper procedures to record their lien,” the groups said. “These initiatives run contrary to the very heart and nature of secured lending, and can destabilize the entire real estate finance system by undermining the value of the collateral securing a loan — resulting in higher costs that will ultimately be borne by consumers.”
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has also expressed concern about the practice of making unpaid HOA dues senior to first-lien mortgages. FHFA has filed suit to invalidate HOA foreclosures on GSE mortgages.