JDSUPRA BUSINESS ADVISOR: Courts, States Continue to Wrestle with Homeowners Association Assessment Liens

By Kenneth Jarin, Joseph E. Lubinski, Abran Vigil, Roger Winston  – Ballard Spahr LLP

August 3, 2015

The circumstances under which a condominium or homeowners association (HOA) lien for unpaid assessments may wipe out a lender’s mortgage lien continues to evolve across the country. As noted in our previous alerts regarding assessment lien priority cases in Nevada and Washington, D.C., the relative priority of these assessment liens, vis-à-vis mortgage liens, continues to have significant impact on lenders, associations, and consumers and potentially impacting the cost and availability of mortgage loans for homes within HOAs.Ruling on FHFA PriorityNew questions regarding the statutory lien priority provided to HOA assessment liens arose out of several 2014 court rulings holding that an HOA could foreclose an otherwise first priority mortgage lien, in some cases even if the mortgage lender received no notice of the foreclosure action. While litigation surrounding the bounds of this principle continues in several states, several federal agencies have asserted that interests in a mortgage held by a government agency are not susceptible to being wiped out without the federal government’s consent pursuant to the Property Clause of the U.S. Constitution. This position was successfully argued on behalf of HUD’s interest in insured mortgages, in Washington & Sandhill Homeowners Ass’n v. Bank of America, Case No. 2:13-CV-01845- GMN-GWF.

Taking the federal interest preemption argument one step further, the Federal Housing Finance Authority (FHFA), as conservator for Fannie Mae and Freddie Mac, has argued in several cases that mortgages held by Fannie Mae or Freddie Mac are entitled to similar protection under the Property Clause. In short, FHFA argues that (a) the FHFA is an agency of the federal government whose property interests are subject to protection under the Constitution; (b) FHFA’s role as conservator for Fannie Mae and Freddie Mac creates a federal property interest in the assets of Fannie Mae and Freddie Mac; and (c) therefore, mortgages held by Freddie Mac and Fannie Mae may not be foreclosed as part of an HOA’s assessment lien foreclosure without the consent of the FHFA.  Read more: