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Rhode Island Supreme Court gives HOAs priority above mortgage liens

Condominium association liens now hold "super-priority"

[Update 1: Earlier version stated homeowners in one case where it is actually lenders.]

The Supreme Court of Rhode Island supports the homeowner's association “super priority” concept, making The Ocean State part of a growing list of states that are, in some fashion, ruling in favor of making HOA liens a priority above mortgage liens.

With the Rhode Island Condominium Act allowing lenders or the condominium association a lien for up to six months of delinquent assessments, this super-priority is superior to the lien of a first mortgage holder. Which means the HOA has the authority to foreclose on a home and extinguish a mortgage non-judicially.

In the latest mortgage banking update provided by law firm Ballard Spahr, they say the court reached this conclusion even though a purchaser at the condominium association foreclosure sale may pay just a fraction of the amount of the first mortgage lien.

Even though the court acknowledges it will cause an unmerciful effect on first mortgage holders, they surmised that homeowners have to ability to either pay off the super-priority portion of the condominium association lien and add such amounts to the borrower's principal, or require the borrower to pay association assessments into escrow.

Since the ruling came to a 4-1 decision, one justice argued that the Act didn’t contain clear enough language to conclude that the legislature intended such a radical change in venerable principles in the law governing secured transactions.

HOA super liens are an issue as of late. The court recently upheld a law that allows homeowners associations to foreclose on homes ahead of first-mortgage providers, giving HOA assessments “super-lien” status that extinguishes first deeds of trust.

Recently the Nevada Supreme Court upheld a law that allows homeowners associations to foreclose on homes ahead of first-mortgage providers, giving HOA assessments “super-lien” status that extinguishes first deeds of trust.

With this ruling, this affects men and women in the military who are not passed due because they couldn’t pay on time, but because they were away at war. But thankfully in states like Texas, a bill was passed that prevents the HOA to foreclose on active military.

"The result of these statutory interpretations has been a wave of mortgage lenders being left with large unsecured loans as a result of homeowner and condominium association foreclosure sales," say the authors Abran Vigil, Joseph Sakai and Joel Tasca.

"This decision will likely have the same effect on lenders conducting business in Rhode Island," they conclude.

3d rendering of a row of luxury townhouses along a street

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