An article that appeared last week on marketwatch.com was parroted today in REALTOR® Magazine, indicating that there is growing concern among lenders over the increased activity by homeowners' associations to exercise super lien powers to foreclose on common interest community units (e.g., condominiums) when the owner falls behind on assessments due the HOA. Many HOAs are strapped financially and no longer can wait for a lender to 
foreclose on its mortgage to take ownership of the unit and take responsibility for the HOA assessments. The HOAs are moving more quickly to foreclose and apparently lenders are not responding quickly enough to foreclosure notices from HOAs to protect their mortgage positions.
Connecticut was among one of the first states to adopt a common interest ownership act which contained a super lien provision in favor of the owners' association for monthly assessment payments. Connecticut adopted its super lien provision in 1984 and it gives the HOA a priority for up to six months in assessments that are delinquent. According to the Community Associations Institute there are 22 states plus DC and Puerto Rico that currently have super lien laws in favor of HOAs and approximately twelve other states are now considering the adoption of super lien laws to help struggling HOAs.
Some states like Nevada allow foreclosure of these super liens without any judicial involvement. Connecticut requires judicial involvement in all foreclosure of any nature. The lack of judicial foreclosures is the greatest concern for lenders as they have less notice and less opportunity to protect their lien positions.
It is feared that these super lien laws will result in increased fees and interest rates for borrowers. Some lenders might even consider not making mortgage loans on common interest community units because of the super liens. The Federal Housing Finance Agency previously indicated that Fannie and Freddie may stop backing or buying mortgage loans in those states with super lien laws. This action by FHFA was detailed in a previous post entitled, FHFA Takes Aim At "Super-Priority Liens".
I believe the press is blowing this situation out of proportion as a result of two recent court decisions, one in DC and one in Nevada, in which substantial mortgages were foreclosed out by HOAs for what was a small sum when compared to the amount of the outstanding mortgage liens. As I indicated CT has had a super lien law on the books since 1984 and it has not been a problem with lenders in CT. Nevada on the other hand does not require a judicial foreclosure process so that lenders need to move a bit more quickly in those types of states to protect their interests. Lenders have traditionally been slow to move as I am sure we have all experienced. It is time that someone lite a fire under them to move quickly for whatever the reason might be.
Image courtesy of lesliehammondrealty.com
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