New Tool Helps Mortgage Servicers Avoid 'Super Lien' Losses

A new service allows mortgage servicers and investors to identify the risk of homeowners association "super liens."

Created by Black Knight Financial Services, the HOA Lien Pro tool pulls data from title plants, including lien-recorded dates, part names and lien amounts, according to a press release. If Black Knight identifies any delinquent HOA obligations, the tool can provide the servicer with the information it needs to clear the HOA delinquencies in order to maintain its first-lien status.

The tool is offered by in four states — Arizona, Illinois, Florida and Nevada — that allow so-called super liens to supersede the first lien on a property.

A super lien occurs when a homeowners association forecloses on a property after the homeowner accrues a significant amount of delinquent HOA dues or fees. Mortgage servicers and investors can incur significant losses if the association sells the foreclosed home.

The Black Knight tool is available to mortgage servicers on both a one-off and continual basis, allowing them to keep tabs on which loans in their portfolios may be subject to an HOA assessment and might be at risk of a super lien situation.

The Jacksonville, Fla.-based company also offers an HOA estoppel letter service, which can help servicers find information on a borrower's financial standing with an HOA and the schedule of future payments.

In 22 states, HOA liens can receive super-lien status, and the provisions have come to the fore in the wake of the mortgage crisis, when many HOAs suffered from a high volume of unpaid dues.

Homeowners associations, seeking repayment for unpaid community and condo fees, have sought tens of thousands of dollars in unpaid dues by foreclosing on properties and selling them at huge discounts to market value. The values of the mortgages wiped away from the banks are sometimes several hundred thousand dollars per loan. Lenders were astonished to learn that their first liens were in fact not superior.

Nevada's Supreme Court ruled in favor of upholding a state law that allowed for homeowners associations to foreclose before first mortgage holders. The case was brought forth by SFR Investments, a company that owned 300 properties in Las Vegas, after Bank of America tried to foreclose on a property SFR had purchased from a homeowners association for $6,000. The bank's first mortgage on the home totaled to $885,000.

Since that ruling, attorneys for the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, sought in at least two cases to block Nevada homeowners associations from foreclosing on residents who owed the associations money and whose mortgages are held by Fannie. The foreclosures extinguished the Fannie liens, and Fannie is unable to recoup what is owed on the mortgages. Ultimately, the FHFA wants an exemption from these laws for Fannie and Freddie loans.

 Black Knight Financial Services is a subsidiary of Fidelity National Financial.