- Joe Wise
Fannie Mae Revises 6-Month Priority Lien Policy
In January, Fannie Mae changed their mortgage lending guidelines. The company said that the maximum priority lien for community associations could be no more than six months. A recent revision to the policy “grandfathers in” states that had enacted legislation for longer priority liens prior to Fannie Mae’s announcement, such as Connecticut and Florida. What’s the overall effect on community associations?
When a unit is foreclosed and assets are liquated, rules determine the order that creditors receive payment. Community association assessments are liens that take priority over the mortgage. When funds are dispersed, the association is paid before the mortgage and other non-government liens.
Every responsible homeowner in the community has to bear the burden of extra expenses due to delinquent owners. Priority liens allow an HOA to initiate foreclosure if a homeowner fails to pay assessments, which protects the financial health of the association. But, priority lien laws to recover delinquent assessments vary greatly from state-to-state. The 2008 Condominium Act in Tennessee provides six months’ lien priority, so it doesn’t appear to run counter to Fannie Mae’s new policy.
The Community Association Institute (CAI) says that Fannie Mae doesn’t recognize that this policy adds a burden to those responsible homeowners who keep their assessments current. Most associations operate on a budget that relies on every assessment dollar to maintain the community and its reserves. Fannie Mae’s new policy now limits HOA assessment collections to a maximum of six months.
This policy could have serious financial consequences when a foreclosure requires a year or longer to complete. In addition to the short-term financial issues that associations can face during the foreclosure, Fannie Mae’s policy adds future negative consequences by limiting the priority lien timeframe. Even a three-month reduction in recovering assessments can make a big difference when every dollar counts.
This is why CAI is engaging its members to help state legislatures and members of Congress understand the detriments of this type of blanket policy. CAI evaluates the short and long-term impact of policies and laws for planned communities. You can count on them as your advocate.
Wise Property Solutions is a property management company serving East Tennessee with offices in Knoxville, TN and the Tri-Cities, TN-VA. Specializing in Condominium Association Management, Home Owners Association Management, HOA Management and Gated Community Association Management.
Tri-Cities, TN-VA: 423-926-7373 Including: Kingsport, TN Bristol, TN Johnson City, TN And the surrounding areas/cities.
Knoxville, TN: 865-643-8989