The Superlien Dilemma

More and more Americans live in planned communities, condominiums, cooperatives and other types of shared-interest communities governed by homeowner associations (HOAs). According to the Falls Church, Virginia-based Community Associations Institute (CAI), fewer than 10 million Americans lived in communities governed by an association in 1980, but by 2012 that number had surged to more than 63 million - an increase of more than 600 percent. One immutable feature of shared-interest communities is the homeowner's obligation for periodic dues and assessments. Dues are usually collected monthly, quarterly, or annually, in amounts ranging from a few dollars to thousands of dollars a month. Prompt dues payment enables associations to maintain properties and leads to financially sound communities. Delinquent dues have the opposite results, leaving associations short of maintenance and repair funds, and making communities less desirable for existing owners and potential buyers. Under state “superlien” laws, mortgage lenders can become liable for a property owner’s unpaid dues. In states with superlien laws, an owner’s association’s lien for unpaid dues is a priority claim on mortgage foreclosure sales proceeds. The super-priority of association liens means mortgage lenders need procedures for handling unpaid dues in superlien states.

Originally published in Mortgage Banking Magazine; reprinted with permission.