CHALLENGE. With the foreclosure rate at historic levels, leadership in the House of Representatives and the U.S. Senate sought to provide bankruptcy judges the authority to modify the terms of mortgages secured by a primary residence. Intended as a means to restructure high-risk mortgage debt, the legislation also provided bankruptcy courts the authority to set aside all subordinate debts secured by a primary residence.

Community associations have lien authority to enforce the payment of homeowner assessments in all states. Eliminating this enforcement tool would mean that assessment rates on responsible homeowners in associations would be raised to cover revenue shortfalls if bankruptcy courts discharged assessment liens. Community Associations Institute was fearful that increasing housing costs for responsible homeowners could create more troubled borrowers while increasing the potential for community association bankruptcies in a down housing market.

SOLUTION. An aggressive outreach plan for key members of the House of Representatives and the U.S. Senate was drafted and a grassroots mail and telephone campaign was activated to support advocacy efforts. Information explaining the negative impact of the proposed legislation on homeowners and community associations was compiled and provided to the Congress. Policy alternatives that supported the goals of the initiative were prepared and presented to the legislation’s chief sponsor in the Senate and to other key Senators.

RESULT. The Senate sponsor of the legislation modified his proposal by limiting the authority of bankruptcy courts to modify only mortgage-related debt secured by a primary residence. All client concerns with the legislation were accommodated.

Case Studies

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