With homeowner association foreclosures wiping out liens on Fannie Mae loans, the company’s regulator has taken legal action.
This past summer, appeals courts in Nevada and Washington, D.C., affirmed lower court decisions that an HOA foreclosure wiped first mortgages.
In the Nevada case, SFR Investments Pool 1, LLC. v. U.S. Bank, N.A., the debt owed to the HOA was just $6,000, while the loan balance was $885,000.
A report from Morningstar Credit Ratings LLC described the ruling as “troubling” for residential lending and warned that both agency loans and private-label securitizations are potentially impacted.
On Monday, the Federal Housing Finance Agency said that it
filed a federal lawsuit tied to the Nevada foreclosure. It seeks a determination that the HOA’s foreclosure sale is invalid and contrary to federal law to the extent that it purports to extinguish its property rights.
In addition, FHFA intervened in Saticoy Bay, LLC Series 1702 Empire Mine v. Federal National Mortgage Assoc. In that case, FHFA wants a declaration that a prior HOA foreclosure sale is invalid to the extent that it purports to extinguish Fannie’s property interests.
According to the regulator, federal law precludes involuntary extinguishment of liens held by Fannie or Freddie Mac while they are still in conservatorship. Holders of other liens, including HOAs, are barred from taking any action that would extinguish a Fannie or Freddie lien, security interest or other property interest.
“Specifically, Title 12 USC Section 4617(j)(3) states that ‘[no] property of the agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the agency, nor shall any involuntary lien attach to the property of the agency,” the statement said.
FHFA additionally said that Fannie and Freddie are not allowed to acquire loans with a Property Assessed Clean Energy program first lien. According to the announcement, PACE liens move Fannie and Freddie mortgages to a second lien position.