Basically, some states have passed laws that allow homeowner association liens (or other types of liens) to take priority over Fannie Mae liens. This means that an HOA will get its lien paid before the feds do.
Homeowner association liens are based on a declaration of restrictions that pre-date any particular Fannie Mae lien. HOA liens also have good reason to take precedence because they represent ongoing maintenance of affiliated common interest property. On the other side, the feds claim priority by statute.
It will be interesting to watch this play out. Here’s what the feds think:
FHFA is aware that, in certain jurisdictions, liens for unpaid homeowner association (“HOA”) dues may be deemed to be senior to preexisting mortgage liens on a homeowner’s property. As a result, on December 5, 2014, FHFA and Fannie Mae filed an action in federal court in Nevada, seeking a determination that a HOA’s foreclosure sale is invalid and contrary to federal law to the extent that it purports to extinguish Fannie Mae’s property rights. Federal National Mortgage Association v. SFR Investments Pool 1, LLC, No. 2:14-cv-02046 (D. Nev. December 5, 2014). FHFA has also intervened in Saticoy Bay, LLC Series 1702 Empire Mine v. Federal National Mortgage Assoc., No. 2:14-cv-01975 (D. Nev.), seeking a declaration that a prior HOA foreclosure sale is invalid to the extent that it purports to extinguish Fannie Mae’s property interests.
These FHFA actions are based on federal law which precludes involuntary extinguishment of liens held by Fannie Mae or Freddie Mac while they are operating in conservatorships and bars holders of other liens, including HOAs, from taking any action that would extinguish a Fannie Mae or Freddie Mac lien, security interest or other property interest. Specifically, Title 12 USC Section 4617(j)(3) states that “[no] property of the Agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency, nor shall any involuntary lien attach to the property of the Agency.” FHFA is authorized, as conservator, to bring this suit because Enterprise lien interests in collateral constitute property protected by this provision.
FHFA has an obligation to protect Fannie Mae’s and Freddie Mac’s rights, and will aggressively do so by bringing actions to void foreclosures that purport to extinguish Enterprise property interests in a manner that contravenes federal law.
Some commentary is starting to appear from banks and community associations: