[1]Florida-based data and analytics firm Black Knight Financial Services [2] has come up with a solution to identify the risk associated with mortgages that have been given "super-lien priority" status, according to an announcement [3] from Black Knight.
Currently, 22 states allow homeowners associations a super-priority lien, which supersedes the mortgage of the lender or servicer. The super-priority status allows HOAs to foreclose nonjudicially (without going through the courts) on a property that is delinquent on HOA dues and subsequently sell the property at an auction, usually at a fraction of what the borrower owed on the mortgage. Thus, super-priority liens have often resulted in significant losses to the mortgagee.
Black Knight's new solution, HOA Lien Pro, helps protect servicers and investors from the losses that may result when an HOA exercises a super-priority lien on a property. HOA Lien Pro can identify which mortgage loans in a portfolio are subject to an HOA and then provide the mortgagee with the name and contact information of that HOA or property management company. This will allow the mortgagee to contact the HOA and resolve any deficiencies that may have arisen before an HOA foreclosure auction, according to Black Knight. The new tool also offers an estoppel letter service to help keep the mortgagee informed as to the property owner's financial standing with the HOA, how much is owed in dues, and a projection of the amount and frequency of future payments.
"Considering the explosive growth in community associations over the last 10 years, and the fact that 22 states now grant super-lien status to HOA assessment liens, this is a critical issue for mortgage servicers and the GSEs," said Kevin Coop, president of Black Knight Data and Analytics, a division of Black Knight Financial Services. "HOA Lien Pro is a simple, cost-effective way to help mortgage servicers and investors reduce the risk of having their first lien positions extinguished by HOA super liens."
Many states granted super-priority liens to HOAs as a result of the housing crisis in order for HOAs to receive the funds they needed to maintain their communities. Currently, no central HOA database exists, which often leaves mortgagees uninformed as to which properties are subject to HOAs. HOA Lien Pro gathers its data from title plants, which are considered the highest quality source for accurate property information, according to Black Knight.
The issue of the super-priority lien has been a hotly contested one in many states, but particularly in Nevada as of late. In September 2014, the Nevada Supreme Court made a much talked about ruling allowing HOAs to extinguish mortgages nonjudicially; several lenders subsequently appealed the decision [4].
One case central to the Nevada Supreme Court decision involves a house sold in Las Vegas in 2007 with a mortgage loan for $885,000 originated by Bank of America [5]. The owner defaulted on the loan a year later and Southern Highlands Community Association foreclosed on the property. The association sold the house at an auction in September 2012 to SFR Investments Pool 1 for $6,000 – the amount the homeowner owed in delinquent HOA dues. When Bank of America tried to schedule its own foreclosure auction on the house the following December, SFR Investments made a filing to stop Bank of America's foreclosure auction, claiming that the mortgage had been extinguished when SFR bought the house in September.
In December, the Federal Housing Finance Agency issued a statement [6] warning organizations such as energy retrofit financing programs and homeowners associations that label mortgage loans with super-priority lien status that such loans will not push mortgages backed by Fannie Mae [7] and Freddie Mac [8] into the secondary position.