Bills would address condominium and homeowners’ association liens

The Banking, Commerce and Insurance Committee heard testimony on two bills Feb. 22 that would address the issue of condominium and homeowners’ association liens.

LB571, introduced by Bellevue Sen. Scott Price, would harmonize existing Nebraska law regarding such liens with the model act on which those laws are based, the Uniform Common Interest Ownership Act (UCIOA).

The Uniform Law Commission amended the UCIOA in 2008, Price said, and the intent of LB571 is to incorporate those amendments into Nebraska law.

Among other provisions, the bill would:

• prohibit an association from foreclosing an assessment lien unless a homeowner is at least three months in arrears;
• require an association to offer a delinquent homeowner a payment plan before foreclosing on an assessment lien;
• prohibit foreclosure when the only amount due results from fines, unless an association has a judgment against the delinquent homeowner for those fines; and
• require an association to apply payment on delinquent accounts to unpaid assessments before being applied to late charges, attorney fees, collection costs or other fines or penalties.

In addition, the bill would allow appointment of a receiver during foreclosure proceedings and limited assessment lien priority for 12 months of delinquent assessments.

LB614, introduced by Omaha Sen. Pete Pirsch, also would address condominium and homeowners; association liens.

Among other provisions, the bill would:

• stipulate that fines imposed by a condominium or homeowners’ association would not constitute an enforceable lien pursuant to a foreclosure proceeding;
• require that a mortgage or deed of trust recorded prior to the recording of a lien in connection with a delinquent condominium or homeowners’ association assessment has priority over the assessment lien; and
• clarify that a condominium or homeowners’ association lien assessment is perfected only if the assessment is delinquent and notice has been duly recorded.

Pirsch said LB614 would ensure that homeowners’ interests are protected.

“The underlying premise is putting in fair procedural safeguards so that homeowners will be treated fairly.”

Testimony focused on which of the two proposals would provide greater protection in foreclosure situations for homeowners, associations and banks.

Mark Kinsey, president of the Sunridge Townhomes owners’ association, testified in support of LB571 and in opposition to LB614.

The owners’ association imposes assessments to provide exterior maintenance, lawn care, snow removal and other services, Kinsey said, and the entire neighborhood suffers when an individual homeowner does not pay.

“Our expenses remain the same and the rest of the homeowners get stuck footing the bill,” he said.

Allowing homeowners’ associations to collect 12 months of delinquent assessments as outlined in LB571 would be reasonable in a foreclosure situation, Kinsey said. Current law stipulates that first mortgage holders have priority, he said, and often not enough equity remains in a home to cover a delinquent assessment lien.

Ward Hoppe of the Nebraska Realtors Association also testified in support of LB571 and against LB614. He said the prohibition on collecting attorneys fees in LB614 effectively would ensure that homeowners’ associations could not recover delinquent assessments.

The relatively small sums associated with assessment liens means that associations would not pursue collection under the restrictions outlined in LB614, he said.

“There needs to be an ability to collect costs and fees along with the associated assessments,” Hoppe said. “And that includes attorney fees.”

Jerry Stilmock of the Nebraska Bankers Association testified against LB571, saying Nebraska has always given lien priority to the entity that files first in time. Deviating from that tradition by extending a 12-month lien priority to homeowners’ associations would be improper, he said.

“It unnecessarily shifts the burden to [mortgage] lenders,” he said.

Stilmock testified in support of LB614, saying homeowners’ association fines should not be included in an enforceable lien because they can be assessed arbitrarily.

“LB614 excludes fines because of the lack of due process,” he said.

The committee took no immediate action on either bill.