October 16, 2007
Posted By Molly Foley-Healy
3 Comments
HUD Rules on Escrowing Assessments
On November 10, 2004, the Department of Housing and Urban Development ("HUD") published a proposed rule that in part would have required the escrowing of condominium and homeowner association assessments for FHA-insured mortgages. The intent of proposed rule was to cut down on foreclosures for non-payment of assessments by collecting assessments as part of the mortgage payment. HUD published the proposed rule for public comment and received several comment letters that challenged the feasibility of such a requirement. Comment letters in part challenged the ability of self-managed associations and management companies to keep track of mortgage lenders in an age of refinancing, to keep mortgage lenders informed of assessment increases, and to handle cash flow issues if assessments were released to associations one-time per year.
On October 2, 2007, HUD released the Final Rule which did not include the requirement that assessments be escrowed. Brian D. Montgomery, Assistant Secretary for Housing, said that "HUD has determined that a mandatory escrow requirement for all FHA-insured condominium and homeowner association fees is not feasible, and has removed the requirement in this final rule."
Didn't SB100 originally require this? It was subsequently amended to permit the escrowing of HOA assessments by mortgage companies. I think this would be a good idea for those who can't seem to remember to send in a check every month,and, as HUD correctly surmised, to preclude associations from judicial foreclosures. By "would not be feasible," I assume HUD means it would be too difficult to administer. If a homeowner elects to do this, he or she needs to understand that he or she is responsible for any payments that are late.
I'm sorry to hear that they removed it. As a Board Member I would love to have seen this pass. Once the loan is complete and the information is sent to the Association, I would think it would be a requirement for the selling mortgage company to forward the Association information on to the buying mortgage company.
A requirement to escrow association assessments would surely prevent unscrupulious developers or management authoritites from missusing funds. Seems like an excellent requirement.
