Community Associations Institute (CAI) endorses legislation that provides community associations with an assessment lien priority equal to the amount of assessments that are due over the term of the lien of a first mortgage or deed of trust.
Community association liens, including the portion that enjoys priority over the lien of a first mortgage or deed of trust, should be perpetually renewable. A single claim of priority should not preclude subsequent applications of future liens for a property in a community association.
The lien provided for should apply only to monthly or periodic common expense assessments made by an association in accordance with its annual operating budget, together with reasonable attorneys’ fees and other costs of collection to recover this amount.
CAI also supports the modification of any laws or secondary mortgage market guidelines restricting or discouraging lending institutions from making loans that are subject to the community association assessment lien priority.
BACKGROUND
Throughout the United States, community associations with statutory or covenanted rights to assess their members for the insurance, maintenance, management, or upkeep of property operated for the common benefit and enjoyment of their members have been bearing an ever-increasing burden of expenses and obligations historically paid for and performed by local governments.
While liens for real estate taxes and other governmental charges against a unit have priority over a first mortgage or deed of trust, community housing association assessments have no such priority because of a lack of legislative authority, even though the association often serves a quasi-governmental function and the association continues to preserve the value of the lender’s mortgage security by continuing to meet all its obligations to all its members, whether for structures, common area maintenance, or administrative protections.
Recognizing the hardships and dangers inherent in this situation, while being at the same time cognizant of the need to protect the integrity of the mortgage lending process, the National Conference of Commissioners on Uniform State Laws has provided for a limited six-month association lien priority over the lien of a first mortgage or deed of trust in its Uniform Condominium Act and related acts. This six-month lien priority was provided with the express consent of advisors to the Conference from the Department of Housing and Urban Development, the Department of Veterans Affairs, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). Revisions over the years to the uniform acts have added additional benefits for community associations.
Twenty-one states have adopted some version of the lien priority, but the language, coverage and impact varies widely, with one state providing a 12-month lien period and others with no such limits.
JUSTIFICATION
In the absence of an association assessment lien priority, nondefaulting unit owners are forced to pay for the upkeep of the association common elements as well as the cost for required insurance and other expenses of the association, possibly for extended periods of time. This increases the amount of the assessments for all other unit owners and may have a negative impact on the ability of the association to qualify potential buyers for mortgage financing. Aside from the obvious unfairness of this situation, severe hardships are thereby imposed upon nondefaulting unit owners, many of whom are already committing a significant portion of take-home pay or fixed retirement income for housing related expenses.
In communities where multiple defaults are common, the resulting increase in regular assessments or special assessments which community associations are compelled to pass along to their responsible, nondefaulting unit owners to cover the shortfall has, in turn, pushed a number of such unit owners into default.
Lenders holding mortgages on both defaulting and nondefaulting units have a vested interest in ensuring that associations have the financial resources to continue to maintain the common and shared areas of developments during foreclosure proceedings. Provision of insurance, maintenance, and security services is essential to the preservation of the value of their mortgage security interests.
RECOMMENDATION
In order to fully realize the benefit of the lien priority, the lien must be perpetually renewable, meaning that it may not be limited by a single priority payment. While the lien priority may be as modest as six months’ worth of assessments, there should be no limit over time. By way of example, the payment of a priority claim in the current year should not affect the ability to reassert a priority claim if a foreclosure commences in a subsequent year.
Adopted by the Executive Committee, April 10, 1983
Amended by the Board of Trustees, October 7, 1983
Reviewed by the Public Policy Committee, October 6, 1993
Reaffirmed by the Board of Trustees, October 9, 1993
Approved by the Government & Public Affairs Committee, July 9, 2013
Adopted by the Board of Trustees, August 15, 2013