Community Associations Institute (CAI) has told the U.S Department of Housing and Urban Development (HUD) that it supports the concept of a proposal that would require lenders of Federal Housing Administration-insured mortgage loans to escrow community association assessments.

CAI provided written comments January 10 on a proposed rule developed by HUD in response to concerns that assessment liens often have priority over FHA-backed mortgages. HUD said its proposal was developed out of a desire "to protect the viability" of homeowner and condominium associations by providing a method giving greater assurance of associations being able to collect their assessments.

Although CAI supports the concept of escrowing assessments, the Institute says there are practical issues that need to be resolved before the escrow provision is adopted. These issues include the schedule by which escrowed payments would be made to associations; how special assessments should be processed; administrative costs to associations, and a variety of logistical and administrative challenges.

CAI is urging the agency to participate in a stakeholder group that can investigate these issues and develop potential solutions. CAI says the ultimate goal of such a consensus committee would be to draft a proposed rule that addresses these major concerns.

CAI stressed that community associations should retain the ability to collect assessments directly from homeowners and use all available remedies, including the last resort of foreclosure, to collect overdue assessments. CAI also pointed out that the proposed rule should require full payment of assessments from escrow at the time the association begins a new year, regardless of whether an association operates on a fiscal or calendar year.

"This is a critical issue for association-governed communities," says Molly Foley-Healy, CAI’s senior vice president and general counsel. "Assessments are the lifeblood of community associations, the resources that enable associations to meet the established expectations of homeowners. We stand ready to work with HUD to do whatever is necessary to ensure that these substantive issues are resolved."

Foley-Healy added that CAI will support a rule only if it does not usurp the legal responsibility of homeowners to pay association assessments.

CAI also told HUD that the proposed rule needs to exclude escrowing special assessments, which are fees occasionally levied by associations to pay for large projects such as street paving, major building repairs and disaster-recovery.

The public comment period on the proposed rule closed January 10. HUD is reviewing the responses to the proposed rule.

CAI is the only national membership organization dedicated to fostering vibrant, responsive, competent community associations. The national organization and its 50-plus chapters represent managers, community association volunteer leaders (homeowners), management companies and the professionals who provide products and services to planned communities.