A Solution for Fannie’s Demand to Clear HOA Liens

As Fannie Mae's July 1 deadline approaches, lenders and servicers must meet the GSE's requirement to satisfy homeowners association claims in order to preserve their first lien position.

If the lender’s first position status is at risk Fannie Mae requires servicers to make advance payments to HOAs when borrowers are 60 days delinquent on assessments. Foreclosures and deeds-in-lieu of foreclosure must be cleared no later than 30 days after the foreclosure sale or deed-in-lieu acceptance.

The first problem, says Brent Stokes, senior VP of data and analytics, Sperlonga Data and Analytics, Arlington, Va., is that "most servicers have not maintained a database or tracked the primary or secondary HOAs associated with a property after loan origination.” In addition, HOAs “don’t typically know how and where to present claims for unpaid accounts.”

And right now the clock is ticking. According to a Fannie Mae statement, starting July 1 servicers must “protect the priority of the mortgage lien and clear all liens for delinquent homeowners’ association dues and condo assessments on properties acquired through foreclosure or deed-in-lieu of foreclosure.”

Fannie's new rule is one more compliance requirement on the to-do list of mortgage banks that entails a few problems for which, Sperlonga executives say, the firm offers a highly specialized, ready to use solution.

Sperlonga has built a broad database of the nation’s HOAs that currently consists of about 225,000 associations, out an estimated 350,000, he says. Sperlonga’s cloud-based technology platform enables users to deploy its Delinquency Check service “to vet HOA demands for accuracy, prevent servicers from overpaying” and complies with the GSE’s reimbursement guidelines.

Sperlonga was established in 2011 as a specialized firm to address "this huge problem,” says its founder Matt Martin, CEO of MMREM, a real estate asset management firm. HOA claims often were cropped up at the last moment to derail transactions and included inflated amounts that were not the responsibility of their clients, he recalls. 

Responding to the unmet demand for a solution Sperlonga developed the technology and started building a HOAs database that offer critical data access to users, Martin says. This year the firm's goal is to include “most of the nation’s HOAs" in Sperlonga’s database by the end of 2012.

According to Stokes, “looming prospects of potentially expensive” HOA ownership problems have been evident in the recent past given the size of this market. It includes over 25 million homes and growing. He argues that the associations and their management companies "badly need their monthly revenues to maintain community standards and preserve property values," so Fannie Mae's  new rules have given their claims priority in a timely fashion. 

Another problem is that of knowing precisely when their borrowers are 60 days behind on their HOA payments.

“In the 16 ‘super-lien’ states and the District of Columbia HOA liens can take precedence over first mortgages, so Fannie Mae and other investors are understandably concerned,” Stokes said.

In response Sperlonga created the Life of Loan Association Surveillance product. 

It tracks HOA assessments and provides an easy-to-use tool for servicers that delivers an early warning of impending loan defaults so servicers are prepared, explains Stokes. "HOA payments always stop before loan payments do."