This week, Congress is scheduled to vote on H.R. 1106: “Helping Families Save their Home Act of 2009.” I urge all owners who live in homeowner associations to call or email their Congressperson and tell them to oppose this legislation as it is currently written.
Part of President Obama’s plan to stabilize the housing markets, H.R. 1106 would allow federal courts to reform mortgages in cases where a homeowner’s property is worth less than their principle mortgage balance. It would give bankruptcy judges the ability to ‘cram down’ the principal balance and monthly payments, wiping out tens or even hundreds of thousands of dollars of money owed. In addition to allowing courts to rewrite private mortgages, the legislation as written could also allow the courts to bypass state assessment lien and priority lien statutes, thereby eliminating the already limited ability for a community association to collect past due assessments from these properties.
Each year, residents of community associations assess themselves close to $80 billion dollars to pay for the maintenance, improvements and amenities in their communities. These assessments help preserve property values and provide infrastructure that would otherwise become the responsibility of state or local governments. When buying into a community association, home buyers agree to pay their share of the community operating costs.
If passed as written, H.R. 1106 could:
- Impact an association’s ability to recover delinquent homeowners’ assessments and, potentially, affect future assessment obligations to the community.
- Bypass state statutes that provide a priority lien or assessment lien for past due association assessments.
- Cause additional strain on the housing market by forcing non-foreclosed homeowners to pay higher fees to cover mandatory operating expenses, pushing more homeowners into financial distress.
- Cut funds available to maintain common areas of the community, resulting in a spiral of deteriorating infrastructure, lower property values and, ultimately, higher financial burdens on state and local governments.
- Undermine, if not unravel, the benefits of common ownership communities by exempting some homeowners from the obligation to pay their fair share to support common elements of the community, potentially leading to the bankruptcy of the communities themselves.
The critical nature of requiring all owners to pay their fair share of association assessments is recognized in the current bankruptcy code under 11 U.S.C. 523(a) (16) and various state-imposed assessment lien regimes. To protect the vast majority of responsible homeowners, legislation addressing mortgage modification must explicitly protect an association’s right to recover funds owed to the community by a delinquent homeowner.
If passed as written, this legislation would have a direct detrimental impact on the responsible residents of community associations. Please take action today by contacting your Congressman or Congresswoman.