Given the fact that 20 percent of the country lives in community or “common interest” associations, it’s no surprise that a groundswell of support—and legislative action—has evolved to protect their financial security.
A variety of laws enacted in 21 states and the District of Columbia allow community associations, in general, “first in line” lien positions (after city tax collectors) when there is non-payment of dues. As these liens can supercede those of a mortgage lender, they are called “super liens.” In legal arguments, community associations have been able to affirm that they act as mini-government bodies in the day-to-day management of their properties, and the association dues are, in fact, a form of taxation.
Some version of super priority lien has been adopted in: Alaska, Colorado, Connecticut, Delaware, Minnesota, Nevada, Vermont, West Virginia, Alabama, Pennsylvania, Rhode Island, Tennessee, Washington, Hawaii, Massachusetts, Florida, Illinois, Maryland, New Hampshire, New Jersey, Oregon and District of Columbia.
In some cases the super priority lien is only applicable to condos. In other states it can apply to condos and HOA-managed properties. There is a wide range of state-specific requirements and limitations for the super priority liens, with mixed success from state to state.
Lenders Looked for Loopholes
Matthew Gaines, an associate with the Braintree, Massachusetts law firm of Marcus, Errico, Emmer & Brooks, serves as chair of the Massachusetts Legislative Action Committee for the New England chapter of the Community Associations Institute (CAI). He describes the situation with condos and superliens relative to the recent real estate recession: “A lot of the units that were purchased in 2003-04 at the top of the market. They often secured 100 percent financing and then, as mortgages were packaged and resold, to ever more distant lenders, the unit owners were eventually stuck with a property that had no equity and worse… finally owing more than the market value of the property.”