The time sure does fly, it seems like only a few months ago that I was getting ready to argue the Drummer Boy case before the Supreme Judicial Court. But, it has actually been over a year since the Supreme Judicial Court entered its landmark decision in the case of Drummer Boy Homes Association, Inc. v. Britton, 474 Mass. 17 (2016) establishing that a condominium association may create and maintain multiple, contemporaneous priority liens by filing successive actions to enforce its lien for unpaid common expense assessments. That decision, while perhaps the most important condominium case ever decided in the Commonwealth, does not guarantee that an association’s priority lien is invulnerable to attach. There remains, in fact, a threat to the very existence of the priority lien as we know it in the Commonwealth which comes from the Federal Government more specifically, from the actions of Federal Housing Finance Agency.
The Federal Housing Finance Agency (“FHFA”) was created in the wake of the financial crisis in 2007 by the passage of the Housing and Economic Recovery Act of 2008 (“HERA”). The purported purpose of FHFA is to regulate Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In 2008, FHFA placed Fannie and Freddie into conservatorship with FHFA serving as conservator. Congress granted FHFA certain protections to aide it in carrying out its duties. Notably, pursuant to 12 U.S.C. §4617(j)(3), “no property of [FHFA] shall be subject to levy, attachment, garnishment, foreclosure or sale without the consent of [FHFA], nor shall any involuntary lien attach to the property of [FHFA].
Courts have acknowledged that the plain language of the statute prohibits property of FHFA from being foreclosed without its consent.
Courts have acknowledged that the plain language of the statute prohibits property of FHFA from being foreclosed without its consent. The basic premise may appear perfectly reasonable, particularly given the precarious state of the banking system and, more significantly for Freddie and Fannie, the default rate in their loan portfolios back in 2008.
However, the FHFA’s attempt to use the powers granted by Congress against condominium associations – and its threat to employ this provision against condominium associations in Massachusetts – is not only unreasonable, it is simply unconscionable.
The FHFA has taken the position that while Fannie and Freddie are in conservatorship, a condominium association cannot foreclose its priority lien in a manner that would wipe out a mortgage in which Fannie or Freddie has an interest. As such, FHFA has taken the position that a condominium’s priority lien cannot be enforced against a unit upon which Fannie or Freddie has a mortgage unless Fannie or Freddie consents to such foreclosure. To complete the picture, FHFA has stated that it will not consent to any such foreclosure. It is estimated that Fannie and Freddie owns or insures close to half of the mortgages in the United States. Therefore, their declaration of war on the condominium priority lien should cause concern, if not outright alarm.
FHFA has already brought a case under HERA in Federal District Court in Nevada and prevailed. The case is G&P Investment Enterprises, LLC v. Wells Fargo Bank, N.A., 199 F. Supp. 3d 1266 (D. Nev. 2016). While the case is on appeal, the FHFA’s success in that case does not bode well for condominiums in any state with a priority lien, including Massachusetts.
The 9th Circuit’s Court of Appeals decision in G&P Investment Enterprises, could turn the tables on FHFA, but the FHFA will live to fight another day. And, FHFA has already taken notice of the extremely favorable priority lien provisions of the Massachusetts Condominium Act. In fact, FHFA intervened in the Drummer Boy case to argue against the rolling-lien in an effort to undermine the protections afforded condominiums by the Massachusetts legislature. Where FHFA will turn next, and whether it will be strengthened or weakened by the 9th Circuit’s decision is unknown, but Massachusetts condominiums and condominium professionals should be ready because another fight may be brewing and this next one may be for all the marbles.