Federal Housing Finance Agency

1700 G Street, N.W., Washington, D.C. 20552-0003 Telephone: (202) 414-3800 Facsimi (202) 414-3823 www.fhfa.gov
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April 26, 2011 Lucas Foletta General Counsel Office of the Governor State of Nevada 101 N. Carson Street Carson City, NV 89701 RE: SB 174 Dear Mr. Foletta: In furtherance of our discussion regarding SB 174 and as promised, I wanted to expand on my analysis of and concerns with the provisions of the bill. As you know, the Federal Housing Finance Agency (FHFA) acts as regulator and conservator for Fannie Mae and Freddie Mac and has obligations that focus on preserving and conserving assets of the firms, avoiding losses and maintaining their safe and sound operations. The agency also oversees operations of the twelve Federal Home Loan Banks. As we discussed, the provisions of the bill which relate to the collection of unpaid homeowners association (HOA) assessments raise significant issues. I would note Fannie Mae and Freddie Mac have provided for reimbursement of six months of regular common expense unpaid assessments. They do not reimburse for collection costs or attorneys fees. The comments that follow, therefore, relate primarily with specifics of the legislation, but I would note that, in general, the bill would alter practices for which the Enterprises do not provide reimbursement. Specific observations concerning substantive provisions of SB 174 and problems with implementation of such a law, that I would hope would be of benefit to your consideration, are provided here: First, Section 15 of the bill provides that reasonable attorneys fees and collection costs for collecting unpaid HOA assessments are included in a HOAs super-priority lien for assessments for common expenses. Experience shows that, in general, attorneys fees and collection costs are much higher than the amount of delinquent assessments and this bill would transfer such costs to servicers and potentially the Enterprises. In any event, general practice has been that homeowners who have title to the property and want to resolve claims related to the property would be required to pay attorneys fees and collection costs.

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If a bill such as SB 174 were enacted, Fannie Mae and Freddie Mac servicers would be responsible for the payment of such attorneys fees and collection costs to the extent they are not paid by homeowners. Servicers might attempt to seek reimbursement from Fannie Mae and Freddie Mac, however, Enterprise seller-servicer guides prohibit reimbursing servicers for such attorneys fees and collection costs. In addition, attorneys fees and collection expenses could increase foreclosure costs and increase the costs to purchasers of homes coming to the market. Second, with regard to capping collection fees under Section 15, the set amount of $1950 is not a true limitation as an exception exists transferring authority to homeowners associations to make a declaration to provide that a lien may exceed the statutory cap without limitation. Therefore, because the provision allows the HOAs declaration to govern over the statutory cap, but then applies the limitation to any other amounts due the association pursuant to the governing documents, the cap may be illusory. While Fannie Mae and Freddie Mac, as noted above, would not reimburse for such collection fees, the language as reported appears to provide no firm capping of such fees in any event. Third, Section 15 is somewhat ambiguous about the lien for collection costs. In particular, it is unclear what time frame is involved for which such collection costs would be afforded lien priority. As we discussed, Fannie Mae and Freddie Mac do not reimburse for such costs. Finally, I would note that this measure would represent a significant change to existing law and practice and could have unintended consequences in the current market environment. Please do not hesitate to contact me if you have any questions regarding these comments; I may be reached at 202 414-3788. With all best wishes, I am Sincerely,

Alfred M. Pollard General Counsel

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