According to the Community Associations Institute, there are approximately 340,000 owners associations across the United States. Homeowners associations account for 51 to 55 percent of the associations, with condominiums representing 42 to 45 percent and cooperatives 3 to 4 percent. As a result, approximately 66.7 million residents reside in an association. Additionally, more than 80 percent of new construction will be inclusive of a homeowners’ association. These numbers pose significant challenges for lenders, closing attorneys and title companies, particularly in states where there are super liens.
What is a super lien?
There are nearly 20 states that allow homeowners’ associations to file a lien for overdue assessments. In most of these states, a HOA lien is subordinate to a first and second mortgage regardless of when the HOA filed their line. In many cases, the HOA lien is treated like a mortgage. However, in super lien states, these liens become a priority lien taking priority over a first mortgage.
What does a super lien mean for mortgage holders?
A homeowner could face foreclosure proceedings if they fail to pay association assessments. In super lien states, this means the HOA lien could extinguish the first mortgage. This potentially results in the mortgage lender no longer having the right to foreclose on the home. The mortgage lender may also lack the standing to collect on the remaining mortgage.
Mortgage Lenders: Loan modifications and more
In general, if a homeowner is facing challenges paying their mortgage, they will almost always stop paying HOA assessments. If the home is located in a super lien state, this may put negotiations for loan modifications and short sales in jeopardy. Fannie Mae has taken steps to minimize this risk by encouraging lenders to either impound HOA fees or pay off past-due fees in super lien states.
Overcoming HOA Data Challenges
One of the challenges that exists for mortgage lenders and loan servicing companies is access to the HOA dues associated with a property. HOA information is key to helping determine collateral risk and whether an impound account is required. It is also essential to know if a borrower has delinquent HOA dues when determining potential borrower risk. It is for these reasons and much more, that HOA data is very important, particularly for lenders, title companies and closing attorneys in super lien states. Only with access to current, accurate HOA data can they protect themselves from facing the loss of revenue in the event a homeowner fails to make their HOA payments.
First American now offers HOA data that allows lenders and mortgage servicing companies to understand instantly the amount of HOA dues associated with properties in their portfolio. Additionally, our data allows them to track the amount each property owes on a monthly basis and potentially step in and work with the borrower to ensure the HOA dues are paid before an additional lien is placed on the property. DataTree is the home for all of First American’s data solutions, including HOA Data.