How FHFA Impacts Your HOA
One of the great things about an HOA is that it is a community. However, because of that, everyone must play their part. So what happens when someone fails to do their part and even abandons their home? HOAs came up with a solution to recoup that lost money quickly. However, it seems the Federal Housing Finance Agency (FHFA), which regulates the second mortgage market and oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks, does not agree.
What’s the Issue?
When a homeowner within an HOA fails to pay their assessments and fees or follow the rules of the community, HOAs generally put a lien on the property. In many cases, these residents are also not able to pay their mortgage and may even abandon their homes while waiting for the bank to foreclose. When this happens, the property is not cared for which affects the community as a whole.
In an effort to improve the neighborhood, some HOAs actually go onto the property and keep it clean and neat, which costs the HOA additional money. As a result, other homeowners have to make up the difference. One neglected house affects the entire neighborhood and the financial stability of the HOA.
This issue is further worsened by the fact that many of the lenders hesitate to start the foreclosure process. In fact, many lenders are given incentives not to immediately start the foreclosure process. This means it takes longer and longer for the HOA to be reimbursed.
To recoup their losses, HOAs came up with a solution: the super-priority
- Generally, when a house goes into foreclosure, the primary lender, such as Fannie Mae or Freddie Mac are the first to be paid. This super-priority lien, however, skips the primary lender and pays the HOA their lost costs first.
FHFA’s Ruling and the CAI’s response
While this super-priority lien is a great solution for HOAs, the FHFA disagreed. They ruled that the first lenders should remain in first-lien position and be given their money before the HOA. The Community Association Institute (CAI) argues that it is unfair to punish the homeowners and HOA when it was the bank’s fault for not beginning the foreclosure process sooner. Banks like US Bank, on the other hand, of course agree with the FHFA, pointing out that the money owed to the HOA is significantly less than the money owed to the bank.
It’s a shame when homeowners fail to uphold their promise to an HOA. However, that problem is worsened when banks postpone the foreclosure process, costing HOAs time and money.
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