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HOA Liens: How “Super” is Super Priority?

Because of their “super” status, Homeowners Association liens are a particular form of confusion and frustration for Mortgage servicers and their attorneys. The content covers legal and process issues that affect a servicer’s ability to assert their position in a property and any other relevant subtopics.superman

Super-priority is more or less the circumvention of the traditional legal concept of “first in time, first in right,” meaning first to notice, file, or record is first in right, meaning that an association’s lien has higher priority over previously recorded liens. Currently, twenty-one states require the foreclosing lender to pay between six months and twelve months, or some variation of periodic assessments to the association at some point during the lender’s foreclosure process.[i] Depending on the state, the beneficiary of the super-priority liens are either condominiums or homeowners associations, or both. As of November 2017, four out of the top five states with the highest foreclosure rate have super-priority HOA statutes.[ii]

In Florida, associations must be named in the foreclosure process as a subordinate lienholder and interested party[iii] and the foreclosing lender cannot assign the bid to a third-party before the sale[iv] in order to qualify for the allowable statutory “safe harbor” provisions.[v] The 2008 Florida statutes were amended to allow an association’s lien to “relate back to the date on which the original declaration of the community was recorded”[vi] reserving a caveat for pre-2008 mortgages.[vii]

Nevada has recently disrupted the lending industry with a shocking decision in SFR Investments Pool 1 v. U.S. Bank.[viii] In this 2014 decision, the court clarified the differences between “true lien priority” and “payment priority” and held that associations hold a “true lien priority” which can unequivocally extinguish a first mortgage upon following the proper foreclosure procedures. [ix]

In Washington, a COA’s lien maintains a limited priority over a mortgage, subject to a relatively recent statute.[x] That limited priority mandates the lender to pay six months of assessments to the COA prior to the foreclosure sale date.[xi]

 

Other Jurisdictions

  • While not a designated “super” priority state, Arkansas recognized that a first mortgage does not entirely extinguish an association’s interest in delinquent assessments.[xii]
  • The District of Columbia[xiii] and Rhode Island[xiv] held that a first mortgage is subordinate to an association lien and the association could extinguish the first mortgagee’s interest.
  • On the more extreme end of the “super” priority spectrum, Massachusetts allows for multiple successive liens (every six months), all of which can be contemporaneously enforced.[xv]
  • Vermont extends its super priority status to assessments that have accrued during the first mortgagee’s foreclosure action plus the prior six months of assessments.[xvi]

In order to preserve the first mortgagee’s lien enforcement rights, some options include: (i) paying off the association’s lien, (ii) keeping the borrower’s account current with the association, (iii) redeeming the property in the association’s foreclosure, (iv) reviewing potential lien priority issues at the loan origination stage, (v) including language in mortgages requiring escrow of association assessments to ensure timely payment, (vi) timely participation in association lien enforcement actions, (vii) referring lien priority determination files to their foreclosing attorneys in each jurisdiction, (viii) requiring an assignment or proxy designation of borrower-owner association voting rights, (ix) requiring assessment invoices, billing statements, and periodic notices be sent to the lender to ensure timely payment or, at least, to allow the lender to monitor the status of an account, and (x) revising the terms of a mortgage to include non-payment of super-priority eligible associations’ assessments be considered a default under the terms of the mortgage.

Overall, lenders and associations must jointly navigate the same laws. While super priority may not be the fairest or the easiest resolution to the problems legislatures face in protecting all interests in real estate properties, it is certainly one solution. In order to properly and effectively navigate these complex laws, lenders should consult with their relevant jurisdiction’s attorney for a case-specific strategy on (i) how best to enforce the terms of the mortgage in case of a default and (ii) how best to preserve its lien in the case of an association foreclosure.

[i] Priority Lien for Collecting Delinquent Assessments. https://www.caionline.org/Advocacy/StateAdvocacy/PriorityIssues/PriorityLien/Pages/default.aspx (Alabama, Alaska, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, Oregon, Pennsylvania, Puerto Rico, Rhode Island, Vermont, Washington, West Virginia)

[ii] U.S. Real Estate Trends & Market Info: Foreclosure Trends. http://www.realtytrac.com/statsandtrends/foreclosuretrends (Alabama 1/2286, Alaska 1/4259, Colorado 1/4170, Connecticut 1/1391, Delaware 1/875, District of Columbia 1/1876, Florida 1/2361, Hawaii 1/3626, Illinois 1/1196, Maryland 1/981, Massachusetts 1/1862, Minnesota 1/3772, Missouri 1/2226, Nevada 1/1407, New Hampshire 1/3894, New Jersey 1/734, Oregon 1/3135, Pennsylvania 1/1723, Puerto Rico (unknown), Rhode Island 1/2324, Vermont 1/7176, Washington 1/5206, West Virginia 1/9372)

[iii] Fla. Stat. 720.3085(2)(c)(2)

[iv] Bay Holdings, Inc. v. 2000 Island Boulevard Condominium Association, 895 So.2d 1197 (Fla. 3d Dist. App. 2005) (holding that a title holder by virtue of a Certificate of Title whom was an assignee of a foreclosure final judgment did not qualify as a first mortgagee, successor, or assignee under Fla. Stat. 718.116(1) and therefore did not qualify for the safe harbor protections.)

[v] Under this statute, the foreclosing lender only has to pay the super-priority portion of the HOA’s lien to a certain degree – the lessor of (i) the past twelve months of regular assessments or (ii) one percent of the original mortgage debt. This statute is still triggered if a Deed in Lieu of Foreclosure is utilized as an alternative to a traditional judicial foreclosure.

[vi] Fla. Stat. 720.3085(1) (2008-2017)

[vii] Id.

[viii] SFR Investments Pool 1 v. U.S. Bank, 334 P.3d 408 (Nev. 2014); Prior to this decision, Nevada’s prior version of the controlling statute was found to have violated the Fourteenth Amendment’s Due Process Clause. See Bourne Valley Court Trust v. Wells Fargo Bank, 832 F.3d 1154 (9th Cir. 2016)

[ix] NRS 116.3116(2); This was later adopted by the Uniform Common Interest Ownership Act (UCIOA) (2014) §3-116 cmt. 2

[x] The Washington Condominium Act of 1989 governs the rights of condominium associations, including the lien priority over lender’s mortgages. While it is effective only for condominiums created after July 1, 1990. A COA lien is considered superior to a mortgage, unless the mortgage is recorded before the declarations of the condominium or before the assessments become delinquent.

[xi] Only periodic assessments for the annual COA’s budget for common expenses are specifically granted the limited super priority over mortgages, while capital improvement assessments and attorney fees and costs from collection efforts are examples of the limitations to the COA lien’s super priority status. See Summerhill Village Homeowners Association v. Roughley, 289 P.3d 645 (Wash. Ct. App. 2012)

[xii] First State Bank v. Metro.District Condos Property Owner’s Association, Inc., 432 S.W. 3d 1 (Ark. 2014)

[xiii] Chase Plaza Condo. Ass’n, Inc. v. JP Morgan Chase Bank, N.A. 98 A.3d 166 (D.C. 2014)

[xiv] Twenty Eleven, LLC v. Botelho, 127 A.3d 897 (R.I. 2015)

[xv] Drummer Boy Homes Association, Inc. v. Britton, 47 N.E. 3d 400 (Mass. 2016)

[xvi] Bank of America, N.A. v. Morganbesser, 2013 WL 9792479 (Vt. 2013)

Written By:  Jessica Skoglund Mazariego, Esq., Attorney
             Gilbert Garcia Group, P.A., a Florida Law Firm

 

 

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What Millennials Want When Purchasing a Home

Design elements are vital when selling your home to the millennial demographic.

Millennials are quickly becoming the largest segment of homebuyers.  It’s vital for homesellers and their real estate agents to know their design preferences when purchasing a home. Thanks to the 2017 Taylor Morris Consumer Survey, the infograph below shows what recent and prospective millennial homebuyers are into.

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The Pros and Cons of The Tiny House Fad

Written By Ashley L. Hobson, Esq.

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One of the most recent movements in real estate is the concept of the “tiny home”. We’ve had many Realtor friends ask about how to consult their clients when it comes to buying the perfect home.  There is a lot to be said about changing your lifestyle to fit a new environment- it shouldn’t be a decision made lightly. It is important to consider certain issues before jumping into the tiny house movement. Below we take a look at some of the Pros and Cons of the tiny house fad.

Ownership and Investing in your Future

Home ownership can be both rewarding and draining. In today’s market, millennials are projected to be the next big target for home buying. Having equity in your home is one of the best ways to invest in your future. Additionally, the tax benefits of owning a home are beneficial as well. On the other hand, while renting might be an appealing option- it doesn’t have monetary return.  In a time where the market is finally becoming more stable, the opportunity to own a home is becoming a more attainable goal.

Resale Issues

While owning your own home is surely an investment, you will reap the benefits of this investment when it comes time to sell. Where Tiny Home are proving to differ from standard residences is in resale value. According to an article in Forbes Magazine entitled “5 Reasons Buying a Tiny House Is a Mistake”, tiny homes are actually less marketable. There is a small concentration of individuals that a tiny home would actually work for. It seems that you would be hard pressed to find a buyer who didn’t want to entertain house guests at some point. The pool of individuals truly interested in tiny homes shrinks even smaller due to lending institution restrictions. In the same Forbes Magazine article, the author notes that lenders often have square footage requirements that must be met. This means that buyers have to be ready to pay with cash. It might be easy to make an “in the moment” decision, but you really should consider the long term value of your investment.

The Appeal

Since millennials are a large target for home buying- it is likely many may consider “going tiny”. In a time where we can’t go five minutes without checking our texts, or social media and email accounts- the thought of cutting out clutter and living cleaner can be appealing. The idea of being mobile and picking up and moving whenever you want might appeal to those who love to travel. For those who don’t want to be tied down to one location forever, but still want to invest in real estate- this concept may work for you. Making the “tiny home” purchase has taken the hassle of shopping for a home away- it’s now as easy as clicking a button on Amazon. Student loans do not make the idea of owning a home appealing to many millennials; debt often gets in the way of getting loan approval.  The tiny home movement does have its appeal when it comes to targeting the millennial crowd.

Space- is it really feasible?

While living simply might appeal to you in theory- it might not actually work in practice. Can you really part with 75% of your possessions? If you have a bike, cooking equipment, or shoe collection- this could prove to be difficult. Individuals interested in tiny homes should really consider what they can truly part with before going through with the purchase. If there are big items you can’t part with- will they fit in your tiny home? If you cannot answer this for certain, maybe hold off on the purchase.

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The Benefit of Having a Real Estate Attorney Involved in the Closing Process

By: Ashley Hobson, Esq. Picture1

Buying or selling a home can be both a stressful and exciting time. Many individuals may have no idea what to expect as they are entering into this process for the first time. The closing process can be confusing or overwhelming since there are many moving parts and documents with unfamiliar legal terms and conditions.

Sapphire Title has attorneys on staff to oversee the entire closing process and handle whatever legal issues may arise during your transaction, many times without any additional fees. Having an attorney review title searches, lien searches, surveys and closing disclosures eliminates much of the risk for items being missed or overlooked. If an issue does arise, whether it be with a party to the transaction or on the title and lien searches, it can be resolved on site and monitored closely by our team. An additional benefit to having attorney oversight is that issues can be resolved through dispute resolution, mediation, or court action if necessary. Attorneys can handle legal matters through avenues that other individuals do not have access to. The ability to simultaneously resolve legal issues and clear title in order to close on time or with as little delay as possible is a huge benefit to agents and their clients.

Many agents admit that they are not equipped to handle legal matters or settle any disputes that can arise and come to us for assistance in resolving issues for their clients. We strive to be a positive and reliable resource for our Real Estate Agent clients- this is a professional relationship that we value. Individuals sometimes find that they have to deal with an unforeseen issue prior to closing.

While the closing process can be intimidating- it doesn’t have to be. You quite literally place all of your trust in your selected title company. With our trusted closing team and attorney oversight, we are happy to be your guide through this time.

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FAQs

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What is Title?

Title is the legal ownership to a piece of property. Title is also considered evidence of possession of a property.

What is escrow?

Simply put, escrow is a deposit of funds in an account held by a third-party to a transaction. Title companies or attorney offices are the major escrow account third-parties used in real estate transactions. All funds are deposited in escrow at a title company and then dispersed according to the escrow instructions. In a real estate sale, the escrow instructions are the HUD Settlement Statement or the Closing Disclosure Statement.

What are Recording Fees?

Recording Fees are county fees and taxes that are required on every sale. When a real estate property is sold, a Deed needs to be recorded. When a buyer purchases a property using a mortgage, then recording fees and taxes are also due to the county. Both the recording fees and taxes must be collected by Sapphire Title Company and then paid directly to the county.

What are E-Recording Fees?

E-Recording is shorthand for Electronic Recording. About 20 years ago, every title company needed to mail in the original deed to the county where the property lies for recording. The county would then mail it back to the title company, who would then forward the original “stamped” recorded deed to the owner. Since the technology boom, counties have become more tech-savvy and have allowed for e-recording. E-recording typically costs $5 per document to be recorded. The $5 fee is convenient to both sellers and buyers in the real estate sale because it cuts down the costs and time to mail the documents back and forth from the county.  A typical turn-around time for a “manual” or “mailed” recording ranges from 7 to 14 days. E-recording typically allows for the county to record within 24-72 hours.

Example Breakdown of Fees:

Recording fees are based off the number of pages in the recordable document. A special warranty deed is typically 2 or 3 pages and generally costs about $27.00 to record. The taxes (known as documentary state taxes) on the Deed are based off the amount the property was sold for. So, if the property was sold for $100,000.00, the taxes would be $700.00.  Taxes are determined by rounding up the sales price to the nearest hundred and multiplying that amount by $0.007 (or $7 for every $100). The same formula is used for mortgages. Typically mortgages range from 18-26 pages or about $150.00 to $225.00 to record. If the mortgage is for $100,000, the documentary stamp taxes would also be $700.00. One difference between mortgage and deed recordings is an additional tax known as intangible taxes. Intangible taxes are collected on every mortgage recording except credit union lender mortgagees or other exempt lender banks. Intangible taxes are determined by rounding up the loan dollar amount to the nearest hundred and multiplying that amount by $0.002 (or $2 for every $100).

The combination of the deed recording fees, the deed’s taxes, the mortgage’s recording fees, the mortgage’s documentary taxes, the mortgage’s intangible taxes (if not exempt), and the e-recording fees total the recording fees.

What are Intangible Taxes? What are Transfer Taxes?

Intangible taxes are imposed by the State of Florida on obligations for payment of money which are secured by mortgages or other liens, as defined by §199.133 Fla. Stat. It is a nonrecurring tax on the note or debt instrument.

Transfer taxes are commonly referred to as documentary stamp taxes in Florida. These are imposed by states, counties, and cities on the title of real property from one person to another within that jurisdiction. Transfer taxes are often confusing to first time homebuyers because they are a combination of a few taxes.

Why do I need a Survey?

Surveys are always suggested and are used to determine if there are any encroachments on the property you own or wish to purchase. A survey details the structures (otherwise known as the improvements) and the boundaries of the property. Generally, on real estate sales involving a lender, the lender will require the Alta Form 9 insurance endorsement. If the lender requires the title company to issue this endorsement, then a survey will be required. Note, however, in most cases, a survey is good for 7-10 years and can be recertified and is often a much less expensive option than ordering a new survey, which can add between $300 and $500 to your closing costs.

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Property Owners Rejoice: Major Estoppel Win Against Associations

June 15, 2017

A three-year legal battle came to an end on April 28th, when HB483, estoppel reform legislation, cleared its final legislative hurdle. An estoppel certificate or letter is required on each real estate closing involving a homeowner’s or condominium association and is intended to provide a full breakdown of expected and delinquent dues or assessments, special assessments, late fees, and violations.estoppel letter

As of yesterday, June 14, 2017, when Governor Rick Scott signed this into law, property owners with homeowners or condominium associations now can rest easy with mandatory caps on estoppel costs. In the past, associations were charging hundreds of dollars for estoppels which hiked up loan amounts, closing costs, and frustrations with everyone involved in the closing. In addition, title companies, realtors, brokers, closing agents, and mortgage brokers can now provide more accurate quotes to their customers.

The law goes into effect on July 1st and requires estoppel certificates to be provided within 10 days of the initial request and be valid for a minimum of 30 days. For owners who are current on their dues, the estoppel fee cap is $250. For owners who are delinquent on their dues, an additional fee of $150 can be charged. For rush estoppels, the fee cap is $100 for rush deliveries within 3 days.

For an example Estoppel Certification, please see Sapphire Title & Escrow’s Guidelines