Big in 2012 and 2013

Where are the federal and state regulatory trends taking us?

What we’re here to talk about…

• What has happened in 2012 and what will happen in 2013– Regulatory Dynamic – Federal Issues – State Issues– Trends

The rules that determine: Who gets a mortgageFor what type of home

In what type of community

Will dramatically change during 2012 and 2013

The Challenge:

2013– Uncertainty is King

• Limitations on assessment collection powers

• Regulation of transfer fees

• Divergent from feds?

• Underwriting criteria for associations (FHA, QM, QRM)

• Focus on consumer protections (collections, REO)

• Regulatory impact on CA practices

Feds Stat

es

Federal Issues

The Federal Issue Horizon

• Mortgage Standards• Condominium Project Approval Standards• Bank Owned and Abandoned Properties• Bulk Sales of Real Estate Owned (REO) and Distressed

Mortgages• Short Sale Standards• Refinancing Opportunities for Underwater Borrowers• Integrity of the Association Model

Mortgage Standards

• Qualified Mortgage Rule (QM) & Qualified Residential Mortgage (QRM) Rule

• Improved mortgage disclosures– Know Before You Owe initiative– All mortgage loans meet new criteria—no

more regulatory gaps– Ability to Repay Standard

Mortgage StandardsImpact on associations

• New scrutiny of association assessments– Assessment increases– Special assessments– Other fees (read transfer fees)

• Potential use of mortgage standards to change association business practices– Transfer fees– Delinquencies and association foreclosures

Condominium Project Approval Standards

• FHA Condo Project Certification Guidelines – Mortgagee Letter Released Today– Delinquent assessment change from 30-60 days – Investor owned properties; increased threshold to 50% may be

investor owned– Fidelity Bond requirement change– Submittal attestation change

• Fannie Mae, Freddie Mac and FHA require minimum standards before evaluating the credit worthiness of borrowers

• Interpretation of Fannie Mae, Freddie Mac and FHA requirements by lenders

Bank Owned and Abandoned Properties

• Federal vs State Laws• CAI emphasizes the following three concerns

– Delays in foreclosure and taking title after a foreclosure– Delay in payment of association assessments due on bank

owned properties– Lender and mortgage servicer refusal to maintain properties

during and after foreclosure

REO Assessments

• REO = Real Estate Owned• REO is a loss leader for banks

– Costly to keep up property– Non performing asset– #1 goal is to move the property for the least cost possible

• Failure to pay association assessments– Servicers overwhelmed

REO AssessmentsImpact on homeowners

• Vacant and abandoned properties• Health, safety & fire hazards• Higher assessments or special assessment to cover lost

revenue (penalizes those who continue to remain up-to-date on their assessments)

• Reduced services/amenities• Lower property values for the community • QM/QRM rules may prevent the sale of property or

refinancing of mortgages

REO AssessmentsImpact on Associations

• Higher delinquency rates that could violate Fannie Mae, Freddie MAC, and FHA condo rules

• Reduced income– Deferred maintenance– Reduced services– Assessment/reserves adjustments

• Aggressive collections• Association initiated foreclosures• Increased reputation risk

Federal REO Disposal

• At the end of the 2nd Quarter—Fannie, Freddie & HUD have 202,765 REO properties

• In 2011 federal regulators asked for ideas on how to sell REO in bulk

• Agencies are bulk sales of REO for use as rentals and rent to own

• Goal is to move properties back into circulation to lower costs and preserve asset values

Federal REO DisposalImpact on homeowners

• Properties in productive use limits distressed sales• Payment of assessments• Higher numbers of rentals means more resident turnover• Bulk sales can lead to large number of investor-owned

properties• Condos exposed to other risks

– Violation of Federal guidelines– Investor controlled association

Federal REO DisposalImpact on associations

• Association knows the owner• Potential for improved fiscal health• Reduces hazards and other community risks• Bulk sales may subject properties to certain federal policy

goals• Bulk sales may lead to less owner influence on board and

association operations• Enforcing CC&Rs• First bulk sale made earlier this week in Florida to Pacifica

for 669 units.

Short Sale Standards

• A borrower is allowed to sell the home for less than the value of the existing mortgage.

• Fannie Mae and Freddie Mac announced new procedures to increase the use of short sales to help underwater borrowers avoid foreclosure. – Borrower doesn’t need to be delinquent on their mortgage

payments– Secondary lien cap of $6,000

Refinancing Opportunities

• HR 3522 – Responsible Homeowner Refinancing Act– Refinancing opportunities for underwater borrowers to allow them

to start rebuilding equity. • Allows responsible borrowers to take advantage of lower

interest rates. • Lowers monthly mortgage payment or offers a shorter loan

term . • Eliminates current Fannie and Freddie special condo risk

fee charge.

State Affairs - Trends

State Affairs - Trends

• 2012– Delinquent Assessments, Foreclosures, Liens, etc…– Freedom of Speech– Transfer Fee– Manager Licensing

• 2013 What to Expect

Collections, Delinquent Assessments and Foreclosures

2011 and 2012 Bills• California – SB 561 – Delinquent Assessments• California AB 2273 – Foreclosure Notification • Florida – HB 213/1149 and SB 1890 – Foreclosure

Proceeding Bills• Hawaii – HB 1600 – Foreclosures • North Carolina – HB 165 – Delinquent Assessments • Texas - HB 1228, SB 101, HB 2761 – Foreclosures • Texas - HB 1228 – Collections

Collections, Delinquent Assessments and Foreclosures

2011 and 2012 Bills• Virginia – HB 377 Information Requested by Lender• Virginia – HB 410 – Recovery of costs for Non Payment

of Assessments

2012 State Legislative Trends

• Foreclosure Notification – California AB 2273 – Foreclosure notification.

Collaboration between CAI- California LAC and Conference of County Bar Associations.

• Foreclosing parties must record a sale within 30 days of the sale and greatly shortens the time for foreclosing parties to notify associations that they are the new owner.

– Florida – Mortgage Foreclosure Proceedings bills; gives associations additional rights and expedited process for abandoned properties.

2012 State Legislative Trends

• Freedom of Speech – Virginia HB 1008 provides that no provision of the declaration

or rules or regulations adopted shall prohibit an owner or any person entitled to occupy a unit or lot from exercising his constitutionally protected right of freedom of speech upon the unit owner’s exclusive property. The bill further provides that any provision of a declaration that prohibits the exercise of such right upon such property shall be void as against public policy. VA LAC opposed it and offered to work with the sponsor to address the underlying issues from which the bill stems. The was carried over to the 2013 session of the General Assembly—VA LAC will continue to monitor the bill and is prepared to oppose the bill unless it is amended significantly.

2012 State Legislative Trends

• Freedom of Speech – Minnesota HF 1254 and SF 926 would have drastically reduce

an association’s authority over property in a common interest community. Subject to minimal restrictions, owners and tenants would have a statutory right to display political signs on property and install flagpoles to any portion of the property of which the owners have exclusive use, including balconies and garage stalls. This would have severely diminished an association’s ability to enforce the association’s governing documents. CAI grassroots efforts led to defeating the bill due to lack of hearing.

2012 State Legislative Trends

• Transfer Fees - all passed bills which sought to further prohibit deed-based transfer fees, while excluding community associations fees.– Alaska– Kentucky– Rhode Island– South Carolina– Wyoming

States that have Enacted Deed-Based Transfer Fee Bans

States that have enacted bills or statutes that prohibit the establishment or enforcement of deed-based transfer fees:  AL, AR, AZ, CO, FL, HI, IA, ID, IL, IN, KS, KY, LA, MD, MI, MN, MO, MT, NC, NE, NY, ND, NV, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, WA, WY

States that have not legislatively addressed the issue of deed-based transfer fees in their jurisdiction: AK, CA, CT, DE, GA, MA, ME, MS, NH, NJ, NM, VT, WI, WV

2012 State Legislative Trends

• Manager Licensing– Connecticut passed HB 5536. Community association

managers must complete a nationally recognized course on management and pass the CMCA or similar test.

– Washington State passed SB 6325, which exempted Common Interest Community Managers from having to become licensed real estate brokers.

– New Jersey AB 2658, passed in the House and moved to the Senate.

– Maryland, New York, North Carolina and South Carolina bills all failed upon adjournment. d due to fiscal notes.

2012 State Legislative Trends

• Interesting Cases Making the News – Maryland – Pit bull Legislation

• A recent court case in Maryland, Tracey v. Solesky, ruled that property owners who know, or have reason to know, of the presence of a pit bull on their property are liable for injuries caused by such dogs, whether or not they know a particular dog has a history of vicious propensities.

• According to dogsbite.org, 650 cities and 41 states in the U.S. have breed specific laws.

2012 State Legislative Trends

• Interesting Cases Making the News – Illinois – Assessment Collection Case

• The three-judge panel ruled that associations are duty-bound to repair and maintain the common elements and that neglect can be viable defense…"Just as the contract principle of mutually exchanged promises can justify a tenant's refusal to pay rent, so that principle can justify a condominium unit owner's refusal to pay assessments.“

• “…until either a higher court or state lawmakers decide otherwise, it is binding law…”

2012 State Legislative Trends

• Manager Licensing– Connecticut passed HB 5536. Community association

managers must complete a nationally recognized course on management and pass the CMCA or similar test.

– Washington State passed SB 6325, which exempted Common Interest Community Managers from having to become licensed real estate brokers.

– New Jersey AB 2658, passed in the House and moved to the Senate.

– Maryland, New York, North Carolina and South Carolina bills all failed upon adjournment.

2013 State Legislative Trends

• Manager Licensing– Regulatory Watch

• Connecticut • Illinois• Virginia

– Legislative Watch– Arizona, Maryland, New York, North Carolina and

South Carolina.

Professional Community Association Manager Regulations

2013 State Legislative Trends

• Uniform Common Interest Ownership Acts/ Property Ownership Acts– New and strengthening.

• Transfer Fee Bans – will not be as popular since so many states have

enacted the language, but still a few remain.• Ombudsman Acts

– states will continue look into ways to resolve HOA complaints, but this does not seem to be the answer.

2013 State Legislative Trends

• Mortgage Foreclosure, Lender, Collection of Non Payment of Assessment

2013 State Legislative Trends

• Unauthorized Practice of Law (UPL)– Based on Arizona and Florida.

• Uniform Common Interest Ownership Acts/ Property Ownership Acts– New and strengthening.

Dawn M. Bauman, CAESenior Vice President, Government & Public AffairsCommunity Associations Institute (CAI)dbauman@caionline.org(703) 970-9224