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Issue Background

Lien Priority for Community Associations

Community Associations Institute (CAI) endorses legislation that provides community associations with an assessment lien priority equal to the amount of assessments that are due over the term of the lien of a first mortgage or deed of trust.

Community association liens, including the portion that enjoys priority over the lien of a first mortgage or deed of trust, should be perpetually renewable. A single claim of priority should not preclude subsequent applications of future liens for a property in a community association.

The lien provided for should apply only to monthly or periodic common expense assessments made by an association in accordance with its annual operating budget, together with reasonable attorneys’ fees and other costs of collection to recover this amount.CAI also supports the modification of any laws or secondary mortgage market guidelines restricting or discouraging lending institutions from making loans that are subject to the community association assessment lien priority.

Throughout the United States, community associations with statutory or covenanted rights to assess their members for the insurance, maintenance, management or upkeep of property operated for the common benefit and enjoyment of their members have been bearing an ever-increasing burden of expenses and obligations historically paid for and performed by local governments.

While liens for real estate taxes and other governmental charges against a unit have priority over a first mortgage or deed of trust, community housing association assessments have no such priority because of a lack of legislative authority, even though the association often serves a quasi-governmental function and the association continues to preserve the value of the lender’s mortgage security by continuing to meet all its obligations to all its members, whether for structures, common area maintenance or administrative protections.

Recognizing the hardships and dangers inherent in this situation, while being at the same time cognizant of the need to protect the integrity of the mortgage lending process, the National Conference of Commissioners on Uniform State Laws has provided for a limited six-month association lien priority over the lien of a first mortgage or deed of trust in its Uniform Condominium Act and related Acts. This six month lien priority was provided with the express consent of advisors to the Conference from the Department of Housing and Urban Development, the Department of Veterans Affairs, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Revisions over the years to the Uniform Acts have added additional benefits for community associations.

Twenty-two states have adopted some version of the lien priority, but the language, coverage and impact varies widely, with one state providing a twelve-month lien period and others with no such limits.