Wednesday, June 03, 2015

Vendors Flood Market with HOA Super-Lien Services | News

Vendors Flood Market with HOA Super-Lien Services | News

"Laws that give homeowners association debts "super lien" priority over all other claims have been a long-standing threat to servicers. But it wasn't until a pair of recent court rulings came out in favor of HOAs that industry vendors started to look at their existing data and technology to develop products for servicers to manage these risks. There are super lien laws on the books in 21 states, plus Washington, D.C. Historically, they've rarely been invoked, but when they are, the results can be devastating for mortgage debt holders. In a Nevada case ruled on last year, the first-lien mortgage holder lost its claim to an $885,000 debt because of $6,000 in delinquent HOA dues. "That gave everybody the awareness that this is not something that they should take lightly," said Ann Song, vice president of REO management for LRES, an industry vendor that recently launched HOA lien services for originators, servicers and investors...Vendors that have flooded the market with super lien-related products include Black Knight Financial Services, CoreLogic and LRES, as well as a partnership that incorporates services from MMREM and Equifax. The vendors all say their services can identify properties subject to super-lien laws and check for active HOA liens. LRES and MMREM will also help servicers negotiate HOA lien disputes. (The two vendors are both REO management companies, while LRES also has an appraisal services unit.)"


Superlien statutes give HOA/condo association liens for unpaid assessments priority over the first mortgage, at least in some amount. They vary from state to state.  The idea is to protect the association from having its entire lien wiped out when the bank forecloses on the first mortgage and there is nothing left over to pay the association for unpaid assessments prior to the foreclosure.  The solvency of community associations hit the radar screen of policy makers since the crash of 2008. Foreclosures wrecked a lot of homeowners' lives and also left an enormous number of associations in terrible financial shape.


robert @ colorado hoa . com said...

"The solvency of community associations hit the radar screen of policy makers"

I guess I missed the part where that happened.

I warned my congresscritter, Jared Polis (D-Colo), about this issue 3 years ago. Like most politicians, he doesn't give a ****.

Instead of trying to figure out how to make H.O.A. corporations work -- because I don't think they can -- our policy makers need to be formulating an exit plan to protect the home owners. But that's not going to happen, because H.O.A. corporations are deferred to as though they are Too Big To Fail. Things are going to get a lot worse for the home owners before -- if ever -- it gets better. Policy makers didn't do anything about the fundamental problems of involuntary membership H.O.A. corporations, such as

- unconscionable imbalances of power
- unaccountability to home owners
- privatized oppression
- rampant financial crimes
- unsustainable business model
- perverse incentives and moral hazards
- destructive and expensive litigation
- lack of consumer protections
- unlimited liability for H.O.A. corporation's debts

during the housing market crash, and they sure as hell aren't going to rock the boat now that housing prices are going back up.

"While foreclosures are falling on a nation-wide basis, one category that is an exception is foreclosures filed by homeowners’ associations against members that are delinquent on their fees." (Yves Smith. January 08, 2014. Regular readers of this blog are aware that those H.O.A. fees include contested fines, attorney fees, and other junk fees conflated as assessments).

Yes, the crash "wrecked a lot of homeowners' lives", but those people don't make political donations, and therefore don't matter. There's also an entire ideology dedicated to the idea that public policy should favor the balance sheets of investors over the well being of millions of individual home owners.

And while the crash "also left an enormous number of associations in terrible financial shape", they were in terrible financial shape beforehand.

"community associations are created mostly for the benefit of municipalities and developers, with very little insistence by government on a financial model that can remotely meet the expectations of the eventual homeowners. Community associations are dying financially. Their business model is fundamentally flawed and many will eventually become obsolete and fail...Community associations are a financial disaster in normal times." (Tyler Berding. January 02, 2012)

Although a lot of individual home owners (and their families) were ruined, and individual H.O.A. corporations were and still are a financial disaster, the H.O.A. industry as a whole came through this mess just fine, and probably more powerful than before. There's a reason that Shu Bartholomew frequently refers to being an H.O.A. manager or H.O.A. attorney as a "recession-proof occupation".

Tom Skiba said...

What is most fascinating about these cases it that the mortgage banks and servicers ignored multiple attempts to communicate with them to resolve the delinquent assessments, as well as get some necessary care and upkeep done on the properties. Then they ignored multiple mandatory legal notices regarding the foreclosure sale. Essentially all they had to do to protect their interest was to file an answer at any time during the process. But they firmly believed that they were not subject to any repercussions for their own incompetence. That was the big surprise in the NV Supreme Court ruling.

And most recently, we have had the wonderful example of federal regulators flying to Carson City to testify on behalf of the mortgage banks and their services, as private citizens of course, and not as the folks charged with regulating those same companies.

Frankly the answer is simple. The banks and services are bound by a servicing agreement with Fannie and Freddie that requires they maintain property, pay all assessments, taxes and other fees, and otherwise protect the asset. In all these cases they are in violation, or maybe even default, on their contracts. Find them in default a couple of times and they well get their acts together or be out of business.

It shouldn't be up to the federal or state governments to protect them from their own incompetence, and certainly not at the expense of associations and the majority of owners in them who are actually paying their bills.

Once again your tax dollars being used to protect the banks from themselves at your expense.