Condo-fee foreclosures become headache for homeowners - MarketWatch

Condo-fee foreclosures become headache for homeowners - MarketWatch: he new wrinkle: A legal process called a “super lien,” which got its beginnings in the 1980s and is now allowed in more than two dozen states, and under consideration by nearly a dozen more.

Super liens give homeowners associations the right to begin foreclosure proceedings against a property if the owner is seriously delinquent on HOA fees. And while mortgage lenders have traditionally had priority when it comes to getting their money back through foreclosure auctions or court judgments, super liens give HOAs the right to jump ahead of the lenders, and in some cases, even wipe out the lenders’ rights completely.

In August 2014, the District of Columbia Court of Appeals, the district’s equivalent of a state Supreme Court, ruled that not only was a condo association correct in foreclosing on a delinquent owner, but that under super lien rules the bank that holds the mortgage loses its right to the property entirely. A Nevada Supreme Court decision a month later came to the same conclusion. While those rulings only impact foreclosures in D.C. and Nevada, other state courts could follow their precedent, said Roger Winston, a real estate attorney and partner in the Bethesda, Md., office of law firm Ballard Spahr LLP.

“The court’s decisions have caught everybody off guard,” said Winston, whose firm represented lenders in the Nevada court decision. “It’s quite a mess out there.”

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At the end of the story, Jason Tufaro, vice president with Matt Martin Real Estate Management in Frisco, Texas, predicts that lenders will factor in the risk of being bumped by HOA super liens and price that risk accordingly into loan rates.