HOA Super lien pose perils for home buyers

Could some of the nearly 67 million Americans who live in communities governed by homeowner associations — condominiums, master-planned developments, cooperatives and others — face much tougher underwriting and higher interest rates when they apply for a mortgage?

That is the looming threat from the mortgage industry in areas where state laws give community associations “super-priority” liens on dwellings whose owners have not paid their assessments.

Super-priority liens give a community association the power to initiate foreclosures and get first crack at the proceeds from the sale of a delinquent dwelling unit, ahead of the traditional first-lien position held by the mortgage lender. Twenty-two states plus the District of Columbia currently have authority for super liens on their books, and all 50 states recognize homeowner association liens.

Homeowner associations argue that, like property taxes for local governments, assessments or dues on units fund the essential operations of the community. They are crucial to maintain the community’s buildings, roadways, parks, recreation centers and other amenities. When unit owners fail to make the payments, the shortfall must be made up by the rest of the owners, often through higher assessments.

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