by Tom Schild
The federal government agency which regulates Fannie Mae and Freddie Mac recently announced that its 2015 goal is to “avoid foreclosure whenever possible” and provide “more favorable outcomes for borrowers”. For condos and HOAs with owners not paying their mortgage and association assessments, this means continued delay in lender foreclosures.
Many borrowers continue to own homes where mortgage payments have not been made for several years. More than half of all delinquent loans held or guaranteed by Fannie Mae and Freddie Mac are at least one-year delinquent, according to the Federal Housing Finance Agency (FHFA) which is responsible for the supervision of these housing finance companies. As of late 2014, more than 300,000 loans with a total unpaid principal balance of about $54 billion were over one-year past due.
In January 2015, FHFA Director Mel Watt reported to a congressional committee that it expects Fannie and Freddie to increase consumer awareness of the Home Affordable Refinance Program (HARP) to reduce mortgage payments and to “continue refining and improving other loss mitigation and foreclosure prevention strategies.” Mr. Watt explained that FHFA will continue to review loss mitigation options to help families stay in their homes and stabilize communities.
FHFA has also instructed Fannie and Freddie to reduce the number of severely delinquent loans they hold by selling more of these loans to private investors which have experience to successfully provide foreclosure alternatives to borrowers who are seriously delinquent.
Under new FHFA guidelines issued in March 2015, purchasers of delinquent loans are required to evaluate all borrowers for loan modification, short sale, and deed-in-lieu of foreclosure as alternatives to foreclosure. Foreclosure must be the last option.
The federal policy of delaying residential foreclosures could mean several more years before a property is foreclosed on by the lender. This is likely to cause continued financial hardship for condominiums and homeowner associations where the owner is not paying the association assessments.
Separately, FHFA has recently filed suit seeking to invalidate foreclosure sales based on HOA assessment liens where state law recognizes a “super priority” for such liens. In Nevada and the District of Columbia which have “super priority” lien statutes, appellate courts have recently ruled that foreclosure of such liens extinguishes the mortgage. FHFA contends that such foreclosures are contrary to federal law to the extent they extinguish the Fannie Mae mortgage interest in property.