By Deborah Goonan, Independent American Communities
Updates on the status of the HOA super priority lien.
In a post entitled Is the HOA Priority Lien necessary and beneficial? (June 9, 2016), I made the case against the HOA super priority lien as a tool for associations and real estate investors to extinguish or “wipe out” bank liens for first mortgages.
Based upon documented facts provided in the article, I concluded that Community Association Institute’s (CAI) argument in favor of expanding priority lien rights to include extinguishing a first mortgage cannot be supported by the facts. Priority lien status does not speed up the bank foreclosure process, reduce foreclosure rates, or contribute to a faster recovery of Association Governed Housing entities.
On the contrary, it can be argued that allowing HOAs to wipe out mortgage liens will only create an economic environment where it becomes more difficult to sell existing homes, decreases affordability for home buyers, and discourages homeownership.
Trade group CAI’s position on the HOA super priority lien
In the same article, I noted that, in 2016, CAI announced an apparent Massachusetts Congressional Delegation alliance in their fight against FHFA’s policy of disallowing HOA priority liens to extinguish a first mortgage if the association forecloses before the bank holding the mortgage. According to the news release by CAI at the time:
Led by Senator Elizabeth Warren (MA-D), the Massachusetts congressional delegation wrote to urge Federal Housing Finance Agency (FHFA) Director Melvin Watt to reconsider FHFA’s attack on state-level priority lien laws.
The letter written by Senator Elizabeth Warren (D-MA), and signed by a Senator and nine Congressional Representatives, reads, in pertinent part, as follows:
Request for Delay and Solicitation of Public Comments As FHFA’s actions and statements reflect, it has discretion to determine whether to consent to foreclosures brought under state super lien laws. The agency’s decision to rely on HERA to categorically withhold consent for such foreclosures – and to aggressively challenge any foreclosures initiated under state super lien laws – represents a significant shift in policy several years after the enactment of HERA. FHFA did not solicit public comment on that policy change even though its new position could potentially affect millions of homeowners and thousands of loan servicers and community associations. Given the widespread effect that FHFA’s new policy will have, believe the agency should solicit and consider public comments before implementing it. Accordingly, we request that FHFA delay implementation of its new policy on state super lien laws and set up a process for obtaining and reviewing public comments on the issue. FHFA should consider how its policy would advance each of its statutory purposes, including its obligation to ensure that “the operations and activities of each regulated entity foster liquid, efficient, competitive, and resilient national housing finance markets.”
Sen. Warren clearly backed CAI’s position that priority liens can and should extinguish first mortgages.
Here’s the full letter from U.S. Sen. Elizabeth Warren
Homeowners, borrowers lose in the war for HOA priority lien supremacy
The letter written by Sen. Elizabeth Warren confirms her well-known contempt for mortgage lenders and banks.
CAI and investors argue the absurd:
That investors or buyers who snatch up cheap houses at HOA foreclosure sales should be entitled to an investment windfall, because the lenders erred and caused the meltdown in real estate.
But why should HOAs and investors profit at the expense of borrowers and taxpayers?
The reason Sen. Warren created CFPB (Consumer Financial Protection Bureau) was, primarily, was to protect borrowers (home buyers and mortgage consumers) from predatory lending practices.
By now, the American public knows that the Obama-era mortgage loan modification program was a total failure — very few benefitted. In fact, now major banks like Wells Fargo admit that they intentionally misled applicants straight down the path to bank foreclosure.
In my opinion, by supporting CAI in their quest to wipe out first mortgages, the Senator is doing further harm to under water borrowers, taxpayers who prop up the GSEs (like Fannie Mae and Freddie Mac) in times of crisis, and future home buyers seeking favorable financing terms.
The big loser in the HOA priority lien fight for supremacy over mortgage loans is the original borrower. That fact seems to have been lost in the legal shuffle.
No consumer protection for HOA borrowers
If anyone is entitled to relief from lenders or servicers, it is the housing consumer who was misled or enticed into borrowing more than the property was actually worth.
The HOA priority lien issue is not getting as much attention as it did a few years ago, but in the next wave of foreclosures, we’re likely to see a repeat of HOA scoundrels foreclosing under shady circumstances and investors swooping in like vultures to devour the kill.
Since 2016, states enacted laws to ensure notification of HOA foreclosures to lenders and loan servicers. However, not only aren’t owners and lenders/services getting proper notice, but also lenders and services don’t even know that HOAs exist for some of their collateral properties.
Even the U.S. Census and HUD do not track residency under HOA governance, and the IRS isn’t going after HOAs that fail to file tax forms correctly, if at all.
Timeline of recent priority lien legal decisions:
Since 2016, buyers of HOA foreclosure properties have continued to ask the courts to extinguish first mortgage liens. Not surprisingly, lenders have been asking the same courts to preserve their mortgage liens.
And, more recently, attorneys for lenders have raised additional legal challenges, noting the unreasonably low sale prices of homes at at HOA foreclosure sales, as well as possible collusion and conflicts of interest between the HOA, its management agents, attorneys, and the buyers who bid at the auction.
August 2017, decision published by the Ninth Circuit Court of Appeals, Berezovsky v. Moniz, 869 F.3d 923 (9th Cir. 2017)
Housing and Economic Recovery Act of 2008 (HERA) creates a “Federal Foreclosure Bar,” If a property is backed by Federal Housing Finance Agency (FHFA) it shall not be subject to foreclosure, including HOA foreclosure, without the consent of FHFA.
January 2018,District of Columbia Court of Appeals, 4700 Conn 305 Trust v. Capital One, N.A.
Court rules that a lien for more than six months’ unpaid HOA fees is a “split-lien,” with only six months entitled to super-priority status, with the potential to wipe out any first mortgage on a condo. The Court sends the case back to the trial court to consider whether the sale price at foreclosure was unconscionably low, and whether or not the sale is legally valid.
March 2018, Nevada Supreme Court, unpublished opinion, Saticoy Bay LLC Series 9641 Christine View v. Federal National Mortgage Association, 134 Nev. Adv. Op. 36, 417 P.3d 363 (2018)
Federal Foreclosure Bar prevents a buyer from extinguishing a first mortgage lien, as permitted under Nevada State Foreclosure Statute. Confirms protection of FHFA’s interests under HERA.
March 1, 2018, District of Columbia Court of Appeals, ANDREA LIU, APPELLANT, v. U.S. BANK NATIONAL ASSOCIATION, APPELLEE.
A condominium association’s foreclosure extinguishes a first mortgage lien when the association collects its 6-month super priority lien, and the proceeds of the sale are insufficient to pay of the balance of the mortgage. A condo association cannot claim its super priority lien and also sell the property subject to the bank’s lien.
March 13, 2018, District of Columbia Court of Appeals, U.S. Bank, N.A. v. Green Parks, LLC
Provides guidance on how banks can protect their interests in priority lien disputes with HOA property purchasers, by making its case that the foreclosure sale was unconscionable, or done with unclean hands.
June 2018, published by the Ninth Circuit Court, Federal Home Loan Mortgage Corporation v. SFR Investments Pool 1, LLC, 893 F.3d 1136 (9th Cir. 2018)
Rejects two attempts by HOA foreclosure buyers to get around the Federal Foreclosure Bar. Rules that both the Securitization and Due Process arguments lack merit.
June 2018, Nevada Supreme Court, unpublished, Nationstar Mortgage, LLC v. Guberland LLC – Series 3, 420 P.3d 556, 2018 WL 3025919 (2018) (unpub.)
An FHFA covered loan owner (Fannie Mae) keeps its secured property interest, even if the loan is serviced by another company.
July 10, 2018, Nevada Supreme Court, unpublished, A&I LLC Series 3 v. Federal National Mortgage Association et al.,—P.3d—, 2018 WL 3387787 (2018) (Unpub.)
Rejects attempts by HOA foreclosure buyers to get around the Federal Foreclosure Bar. Rules against both the Securitization and Due Process arguments. Nevada Supreme Court relied on Federal Courts for guidance. (District Court and Ninth Circuit).
August 2, 2018, Nevada Supreme Court, SFR and Star Hill HOA v. BNYM
Answers Certified Question, taking an anti-lender stance on the HOA priority lien issue. State law (NRS 107.090, NRS 116.31168(1)) requires notice to all lienholders, and does not require an “opt-in” Request for Notice. The court’s ruling appears, to some legal experts, to be based on contractual grounds. If that’s accepted as fact, Nevada courts would be likely to deny arguments that extinguishing mortgage liens in favor of HOA super priority liens is unconstitutional, denying due process.
New petition to Supreme Court of the U.S.
HOA foreclosure buyers made two appeals to the SCOTUS since 2016
The first case, filed in May of 2017, challenged the super priority lien process, with regard to the issue of proper notice of HOA foreclosure to all lienholders.
No. 16-1208, BOURNE VALLEY COURT TRUST, Petitioner, v. WELLS FARGO BANK, N.A., Respondent. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit
QUESTION PRESENTED (i) Whether a state statute that impairs the private ordering of rights in property through nonjudicial foreclosure proceedings is a form of state action subject to the Due Process Clause.
The SCOTUS declined to consider the Bourne Valley petition.
No. 16-1208
Title: Bourne Valley Court Trust, Petitioner
v.
Wells Fargo Bank, NADocketed: April 7, 2017
Linked with 16A753
Lower Ct: United States Court of Appeals for the Ninth Circuit
Case Nos.: (15-15233)
Decision Date: August 12, 2016
Rehearing Denied: November 4, 2016
The second SCOTUS appeal, filed in December 2018, asks the court to consider two arguments in favor of real estate investors who purchased nearly 800 properties in the state of Nevada between 2010 and 2015.
No. 18-670 SFR INVESTMENTS POOL 1, LLC, Petitioner, v. FEDERAL HOME LOAN MORTGAGE CORPORATION, FEDERAL HOUSING FINANCE AGENCY, FEDERAL NATIONAL MORTGAGE ASSOCIATION, Respondent. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit
Arguments:
I. Fannie and Freddie’s Post-HERA Publications Reflect and Support Their Consent to and Support for the Super Priority Lien
II. THE LOSS ASSOCIATED WITH THE EXTINGUISHMENT OF A SECURITIZED MORTGAGE SHOULD BE BORNE BY THE SERVICER THAT CAUSED IT
In short, SFR Investments Pool asks the SCOTUS to consider the fact that GSEs (Fannie and Freddie) instructed their third party loan servicers to monitor their loans, and pay past due assessments in order to preserve the priority of their mortgage liens.
Because many loan servicers failed to pay HOA assessments on behalf of the borrower, the GSEs should seek relief from their loan servicers, not the investors who purchased homes at HOA foreclosure auctions.
Mortgage banks and lenders, real estate investors, CAI, and property rights advocates will follow closely, to see if the SCOTUS agrees to consider the SFR Investments Pool appeal.
References:
Community Associations Institute, Lien Priority for Community Associations
HOA Super-Priority Lien Law Preempted by Federal Statute, Bradley Arant Boult Cummings LLP, March 26, 2018
Nevada Supreme Court Uncharacteristically Aligns with Ninth Circuit in Holding HOA Super-Priority Lien Statute is Preempted by Federal Foreclosure Bar, Author: Margaret Schmidt, Guest Editor: Leslie Price, May 31, 2018 (tyson & Mendes)
Nevada Supreme Court Uncharacteristically Aligns with Ninth Circuit in Holding HOA Super-Priority Lien Statute is Preempted by Federal Foreclosure Bar Author: Margaret Schmidt Guest Editor: Leslie Price May 31, 2018 1:28pm Author: Grace Song, Margaret Schmidt, Guest Editor: Leslie Price, September 5, 2018 (Tyson & Mendes)
Nevada Supreme Court Deals (another) Major Blow to Lienholder and Servicers, Wright, Finlay & Zak Nevada HOA Update August 5, 2018 | T. Robert Finlay
Condo Liens Entitled To Super-Priority Status Regardless Of Number Of Months Sought, 25 Sep 2018 | James N. Markels, Jackson & Campbell
New Decision from the D.C. Court of Appeals Recognizes Additional Defenses to HOA Super-Priority Lien Statute By R. Aaron Chastain, Jon H. Patterson and Andrew J. Narod (March 27, 2018)
Map of priority lien states as of 2018 (via Corelogic)
Priority Lien states: Alabama, Alaska, Arkansas, Colorado, Connecticut, District of Columbia, Delaware, Florida, Maryland, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Washington, West Virginia (21 states plus D.C.)
HERA and HOA Foreclosure Sales(DSN News), September 24, 2018
Ten Ways Lenders Lose Their Liens orLien Priority And Why The Rest Of You Should Care
Adam B. Weissburg, Raymond J. Werner, and Brent C. Shaffer