Homeowner Association Problems - Article Review Example

Introduction

A Homeowner Association (HOA) is an organization within a specific community that develops and enforces rules on properties. It is a community association that determines the terms and conditions governing properties and residents in the region. Areas with HOAs have rules and regulations that guide the development and utilization of single homes and multiple buildings. Apart from serving as a regulatory authority, HOAs provide essential services that ensure comfort and convenience for property owners and residents. Their work maintains the properties’ quality and value, enabling the community to attract other customers (Sterk, 2018). Performing these duties requires HOAs to collect dues used to fund service provision. However, HOAs face several problems due to the dynamics of enforcing rules, collecting assessment fees, and maintaining properties amidst noncompliance with the organization’s terms.

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Summary

The article 'Maintaining Condominiums and Homeowner Associations: How Much of a Priority' documents the challenges that HOAs encounter as they strive to serve communities. It is a detailed discussion of the problem that plagues common-interest communities and organizations that depend on HOAs to sustain decent neighborhoods. The author introduces community associations, with HOAs and condominiums accounting for most organizations in the US. In shared interest areas, community associations regulate aspects such as the architecture, landscaping, and parking rules. They also provide services like maintaining community facilities, including swimming pools, tennis courts, gyms, clubhouses, and playgrounds (Sterk, 2018). Through a legally binding agreement among the members, an HOA manages properties in the subdivision and ensures that residents benefit from the available facilities. HOAs use assessment fees to run operations and provide services. The author also addresses the issuance of liens to the associations to guarantee that the HOAs will collect the property owner's debts.

Having introduced the conflict between banks’ and associations’ interests when property owners default on mortgage loans and assessment fees, the article proceeds to discuss lien priorities. Achieving a balance on order for recording owed dues is challenging, given the number of parties who may have a claim to the property (Sterk, 2018). A lien gives different persons and organizations the right to possess a property until the owner pays their debt. The author examines which liens prioritize various settings, emphasizes the need to prioritize HOAs' liens, and considers past decisions regarding lien priorities. The article proceeds to discuss the 2008 housing crisis and its implications on the interpretation of laws revolving around housing foreclosures (Sterk, 2018). It tackles the application of the ‘super priority’ in different states and the federal government’s perspective. Based on the litigation, the author delves into alternatives that can reform the system and pave the way forward that prioritizes the work and authority of HOAs. Thus, the article offers an alternative solution that protects community associations’ interests.

Analysis

The article's primary issue arises from the lack of consensus on which liens should be prioritized when a unit owner does not fulfill their obligation to various parties. Banks and community associations continue to contest the priority as each organization puts its interests first (Sterk, 2018). Achieving a compromise between banks and HOAs is necessary to eliminate lengthy delays that follow foreclosure litigations and affect organizations' service delivery. Community associations have to contend with banks' lobbying power and promote HOAs' interests (Sterk, 2018). Therefore, getting courts to rule in favor of community associations and grant their liens priority will revert the traditional rule that supports mortgage liens priority.

The current lien priorities are ineffective in meeting the needs of all parties owed by individuals who default payments and assessment fees. People fail to pay dues to banks and community associations due to various reasons. Unfavorable lending policies are among the leading causes of defaulted mortgages and a high rate of downturns in common interest areas. Unlike community associations, banks are better positioned to lose lien priorities since they can survive the delays in recovering their debts (Sterk, 2018). Prioritizing community associations, instead of financial institutions, can trigger a policy change that will compel banks to offer fair and sensible lending policies to prospective property owners. Since they have enjoyed priority for a long time, it is necessary to initiate reforms that provide a long-term solution to HOAs problems.

Discussion of Applicable Laws

When there is a conflict between federal and state law over which lien takes priority, the courts must consider other parties involved in the dispute, after which state law applies. For instance, the ruling in Chicago Title Insurance Co. v. Sherred Village Assoc., 708 F.2d 804 (1st Cir. 1983) asserts that a mechanic’s liens documented under state law have priority over a prior recorded federal mortgage (The United States Department of Justice, 1998). However, the court should consider the effects of applying a uniform federal law to the case on the commercial relations between the property owners and those holding liens. Therefore, federal law applies to federal programs like mortgages but does not necessarily warrant denial of state law priority.

According to California state law, some liens are superior, and others are subordinate. The practice dictates that ‘first in time, first in right’ and requires parties in a covenant to honor liens depending on their dates (Brewer, 2006). It is essential to acknowledge that the agreement is legally binding regardless of consent. California state law recognizes and enforces consensual and non-consensual liens imposed by law. Subordination Agreements allow parties to change their priorities if they enter into consensual liens (Williams, 2018). San Diego local Homeowner association laws also adhere to the first in time, first in the right policy. Real estate in the region operates on the premise that purchase funds liens come first; thus, they always have priority ("Lien Priority,” n.d.). Hence, it is a tradition that prioritizes mortgage liens since they are first.

Recommendation

Based on Civil Code Section 2897, as documented in the California state laws, it is essential to grant priority to the first liens. Issuing priority depending on the date of creation ends up benefiting financial institutions like banks that provide mortgages to prospective property owners. However, adhering to this law does not solve the real estate issue that triggers community associations' several problems. It allows the problem to persist since many individuals rely on banks' loans to build properties in their desired community areas. Therefore, it is necessary to undo the outright priority given to banks by eroding it over time, depending on the time taken to foreclose properties.

Conclusion

Outright priority issued to parties holding the first lien enables banks to obtain their dues despite taking a long time to foreclose properties. While banks have the financial capacity to account for the losses, community associations do not and may struggle to address future assessment issues. By eliminating their definite lien priority that maintains superiority for coming first, lending institutions can consider using sensible mortgage rates and allowing community associations to collect their dues from defaulters without undermining the properties’ value. By focusing on the state legislature and the need to protect community associations’ interests, states can revise lien and real estate laws to prioritize debts owed to HOAs since they provide essential services to residents.

References

The United States Department of Justice. (1998). 95. Priority of Liens. https://www.justice.gov/jm/civil-resource-manual-95-priority-liens

Lien priority. (n.d). Davis Stirling. Retrieved 24 September 2020, from https://www.davis-stirling.com/HOME/Lien-Priority

Sterk, S. E. (2018). Maintaining condominiums and homeowner associations: How much of a priority. Indian Law Journal, 43(1), 807. http://lawecommons.luc.edu/luclj/vol43/iss1/4

Brewer. (2006, July 1). Who’s on first? – Lien priority in California. https://www.brewerfirm.com/resources/whos-on-first-lien-priority-in-california/

Williams, N. (2018, November 1). Priority of liens on California real property: An overview. California Mortgage Association. https://californiamortgageassociation.org/industry-news/article/priority-of-liens-on-california-real-property-an-overview/