Real Estate Marketing & Beyond
Home buyers may soon face more stringent underwriting standards and even higher interest rates when applying for a mortgage to purchase a home that falls within a homeowner association, the lending industry warns.
The threat comes from mortgage industry officials who are warning areas with state laws that give community associations "super-priority liens" on homes in which owners have failed to pay their assessments. Super-priority liens grants a homeowner association the right to initiate foreclosures as well as get the proceeds from the sale of the delinquent home ahead of the first-lien position, which is typically held by a mortgage lender. Twenty-two states, plus the District of Columbia, have authority for super liens, The Los Angeles Times reports.
David Stevens, president of the Mortgage Bankers Association, warned that in states with super liens where lender and investor interests can be erased, buyers may start to face higher loan fees, more stringent downpayment requirements, as well as time-consuming reviews of the homeowner association’s finances. Some lenders also have said that they will reconsider whether to do business in communities that have super liens.
Homeowner associations argue for "super-priority liens," however, saying that the assessments or dues they collect are essential to maintain a community and when owners fail to make payments, the shortfall then must be made up by the rest of the owners via often higher assessments. The situation has played out in states like Nevada, Florida, and other states that in the aftermath of the housing crisis saw large numbers of defaulting home owners on their assessments and led to communities with tight finances.
Community association leaders say that they've been left with no other choice to initiate their own foreclosures on home owners because in some cases the lenders who owned the mortgages on the defaulted homes would not pay the assessments once the owners had moved out. Lenders "dragged their feet on foreclosures for years, delaying the process that would give them legal and financial responsibility" to pay assessments on properties they basically owned, according to the Community Association Institute, which represents 33,000 member associations and managers nationwide.
More state legislatures are granting homeowner associations the right to initiate foreclosures after providing notice to lenders and loan servicers.
However, mortgage lenders say that it comes at the price of their own collateral interests in the homes. For example, the Nevada Supreme Court ruled last fall that the lender's lien can be erased when homeowner associations foreclosure on delinquent units after providing notice and giving lenders the opportunity to pay the delinquent assessments.
Nearly 67 million Americans live in communities governed by homeowner associations.
First off, Community Associations Institute does not represent HOAs and owners - it represents the people profiting off of HOAs, and lobbies to keep themselves unlicensed (in most states), and keep out the substantial regulations that would hold them accountable. They don't protect property values, and this push that will make financing difficult will harm values. This also opens up another avenue to allow HOAs to take people's homes, and who is going to have the inside door to profit on the situation while at the same time screwing the banks! I don't blame lenders for their position. The lenders also need to look at the reserve studies (as well as buyers and owners)...too many HOAs have been mismanaged and are going to face huge special assessments (note that also doesn't have a positive influence on values either!). Apparently owners need their own lobby group if they ever want any hope in change in the HOA industry.
The one key factor that you failed to mention is that when the banks take 3 years to foreclose, the remaining owners pick up the slack and pay for the fee, which at times includes water, electicity, etc., for those delinquent owners. This can put a person who is already stuggeling to pay their own bills over the line into causing the same problem. If banks would speed up their process, the associations would not need to foreclose as they hardly EVER want to own a home that would increase the cost because of insurance and taxes on the property until it is sold.