Can Associations Have Priority over Fannie or Freddie?

An association’s six-month lien priority is sometimes termed a “superlien,” but there is nothing particularly “super” about it; the statute simply provides that an association has a lien with priority over the first mortgage, much like the lien of property taxes in nearly all states. An association’s total lien is effectively split into two components: a lien before the first mortgage for six months of assessments and a lien junior to the first mortgage for any delinquent assessment amount over six months’ worth. In this way, section 3-116 was intended to strike “an equitable balance between the need to enforce collection of unpaid assessments and the obvious necessity for protecting the priority of the security interests of lenders.” This careful balance is in jeopardy, however, as the result of challenges from the Federal Housing Finance Authority (FHFA), claiming that associations cannot foreclose on assessment liens without the FHFA’s consent if the property is subject to mortgages held by Fannie Mae or Freddie Mac. After explaining the basis for the FHFA’s novel defense, this article gives several reasons why courts should reject the defense