Important News About HOAs and Foreclosures

Filed under: Market Comentary

HOAThere is some disturbing news out of Nevada concerning homeowners associations (HOAs) and foreclosures. According to a recent article in Mortgage News Daily, the Nevada Supreme Court has upheld a law which allows an HOA to foreclose on homes ahead of first mortgage providers.

This decision solidifies “super lien” priority for HOA claims in Nevada and could possibly lead to similar laws in other states that have “super lien” laws designed to protect HOAs at the expense of first lien holders.

The Nevada Supreme Court ruled that an HOA super-priority lien is an actual “true super-priority lien” and if a foreclosure is properly conducted on the HOA lien, it extinguishes first deeds of trust.

The article cited a case where there was a $6,000 lien foreclosed upon by SFR Investments, which wiped out an $880,000 first lien held by U.S. Bank.

Across the country, there are approximately 20 states that are classified as “super-lien” states, which, according to analysts, pose a high risk to lenders, servicers, and investors in certain parts of the country. The article mentions that there could be as many as 350,000 HOAs covering over 25 million households.

Anyone who currently has an HOA should be aware that depending on the aggressiveness of your HOA, the possibility of mismanagement, fraud, and even vindictiveness may occur. And, even though the CFPB and FHFA have attempted to completely inform consumers about the mortgage indebtedness, an unregulated HOA could seize property with little effort.

Another case the article cited centered on a condo HOA in Las Vegas, which filed liens on property for non-payment of HOA dues. The lien rights were then bought by some entity and foreclosed. This is a new precedent as before an HOA could not actually foreclose, just file notice. But the Nevada Supreme Court ruled in favor of the HOA, which states the HOA can foreclose and is in front of the first deed of trust.

The article also explains that this decision could not only be detrimental for lenders trying to make loans on properties with an HOA, it may also be disastrous for housing with HOAs in the state of Nevada, and, soon, possibly several other states.

If you have any questions about the mortgage industry, please give me a call and we can discuss whatever is on your mind.


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