CAI Seeks Preservation of Mortgage Financing Eligibility and Lien for Assessments

Jun 17, 2015
 

Legislation was introduced on June 15 by State Representative Martina White of Philadelphia that seeks to ensure that ensure that community associations in the Commonwealth are not affected negatively by a recent U.S. Court of Appeals decision and new federal mortgage underwriting guidelines. House Bill 1340 has two amendments to Title 68 statutes pertaining to condominium and homeowner associations.

Amendments to Section 3219 (d) and Section 5219 (d) of the Title 68 Acts – Amendment of Declaration

As a result of current mortgage underwriting guidelines, a condominium might be ineligible for mortgage financing if the number of rental units in the community exceed fifty (50%) percent.  A community association that is declared ineligible for financing suffers dramatically from decreasing values of the units and a chilling effect on sales. Therefore, to preserve such eligibility status, many condominium associations have adopted, or are in the process of considering, amendments to their governing declarations to limit the number of rental units to below fifty (50%) percent. Amendments to declarations governing condominiums and planned communities are authorized under the Acts upon an affirmative vote of sixty-seven (67%) percent of the unit owners.  However, unanimous consent is required under the Acts if, among other things, the amendment changes the “use to which the unit is restricted.” Most practitioners agree that an amendment limiting the number of rental units permitted in a community association does not change “the use” of a unit as the unit has been, and will remain, used for residential purposes.  However, to avoid any confusion on this issue and insure that associations will be able to comply with federal underwriting standards, the Acts must be amended.  These amendments would make it clear that the term “uses to which any unit is restricted” does not include the leasing of units.

Amendments to Section 3315 (d) and Section 5315 (e) of the Title 68 Acts – Lien for Assessments

Condominium and homeowner associations rely on unit owner assessments to pay for various obligations imposed on them by their governing documents and the Acts. In most cases, these obligations entail not only maintenance and repair of unit components such as roofs and siding, but also infrastructure components, including roads, storm water management and utility systems. Continued payment of assessments as well as the ability to collect them is therefore vital to community associations. To assure continuous funding of community associations via unit owner assessments, the above-noted sections of the Acts impose upon each unit a “lien for assessments”. This statutory lien serves as an effective mechanism to promote the payment of assessments and as appropriate security in the event of a serious delinquency. However, most often, associations seek to recover unpaid assessments by obtaining a personal judgment against the delinquent unit owner(s) rather than foreclosing on the statutory lien. Such a collection procedure is much less expensive than a foreclosure action and enables the homeowner to retain ownership of his or her home. In 2014, the US Court of Appeals held that a personal judgment obtained by a community association does not preserve the statutory lien. This means that unless associations file lien foreclosure actions within three years of a delinquency, the lien for assessments is extinguished. As a result, associations will be required to resort to much more drastic, aggressive, and expensive foreclosure proceedings to assure continued financial viability. In turn, collections of unpaid assessments will become substantially more expensive and time-consuming, with the increased costs being passed on to homeowners. The proposed amendments to Section 3315(d) of the Uniform Condominium Act and Section 5315(e) of the Uniform Planned Community Act will solve the serious problem caused by the decision and enable associations and their members to resolve assessment delinquencies without putting ownership of homes at risk through foreclosure proceedings intended to protect the association’s lien position.

CAI’s Legislative Action Committee supports adoption of this legislation. For more information on this and other legislative priorities that CAI is working on, please visit our legislative page

 


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