The federal government is finding itself in a tricky spot amid a local battle over home foreclosures.

Attorneys for the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, sought last month in at least two cases to block Nevada homeowners associations from foreclosing on residents who owed the associations money and whose mortgages are held by Fannie. The foreclosures extinguished the Fannie liens, and Fannie is unable to recoup what is owed on the mortgages.

FHFA is preparing to argue those cases violate the Housing and Economic Recovery Act of 2008—the law that created FHFA and gave the Treasury Department authority to place Fannie and Freddie into conservatorship—and it is seeking an exemption that may prove controversial,
according to attorneys tracking the case.

The issue surfaced last year after the Nevada Supreme Court and the D.C. Court of Appeals ruled in favor of the homeowners associations. The Nevada case especially alarmed lenders in 22 other states where similar statutes stand but are rarely ever used.

Homeowners associations, seeking repayment for unpaid community and condo fees, have sought tens of thousands of dollars in unpaid dues by foreclosing on properties and selling them at huge discounts to market value.

"After the crisis, people started walking away from their fees, and suddenly there were dozens of people in communities not paying their condo fees, and assessments had to go up," said Roger D. Winston, a real estate partner at Ballard Spahr, which has been involved in more than 250 individual cases in Nevada.

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