President Obama's Proposed Mortgage Modification Law Fails to Become Law
The proposed law could perhaps inadvertently impair associations’ ability to recover unpaid assessments from owners in default on their mortgages.
The Presidents plan to stabilize the housing markets, H.R. 1106, would allow federal courts to reform mortgages in cases where a homeowners property is worth less than their principal mortgage balance. More specifically, the law would give bankruptcy judges the ability to cram down a mortgage's principal balance and the related monthly payments. It remains a concern however whether, if adopted, this law would threaten both associations ability to collect past due assessments and their lien-related rights (including rights under the priority lien portion of New Jersey's Condominium Act). Recent amendments to the proposal have attempted to minimize these threats. H.R. 1106 was recently amended to clarify what costs must be included in an owners' post bankruptcy payments. The proposed law now specifically includes assessments in the resulting formula. Experts interpret this amended language as intending to ensure that the modified mortgage payment must be lowered enough so that when payments for taxes, assessments and other mandatory costs are added to the new payment, the resulting amount is below a sustainable threshold set by law.
However, additional study of this proposed law is necessary, along with additional amendments. It would certainly help for our elected officials to be reminded by owners within community associations of their need to protect the rights and financial security of a debtor's neighbors, as well as the debtor himself.
