This was an important victory for Nevada and Nevada homeowners! If this didn’t pass, it would have made Nevada a harder place for lenders to protect their secured asset against HOA claims. If that was the case, why would they want to lend in Nevada? Unfortunately, the answer is that many lenders wouldn’t, and those that did would increase their pricing to compensate for the risk, which would only hurt homeowners. Good job Nevada legislature on amending this law. – Greg Hughes

The Nevada State Senate passed a bill at the last minute just before the end of its legislative session that revises the provisions of a law that allows homeowner’s associations (HOAs) to foreclose non-judicially on a residential home when the homeowner’s HOA dues become delinquent, according to the Nevada State Legislature.

Nevada Senate Bill 306, a bi-partisan bill sponsored by Nevada State Senators Aaron Ford (Democrat) and Scott Hammond (Republican) in March, was approved late last week just before the legislative session ended on Sunday. The bill was created in response to the controversy created by a ruling handed down by the Nevada State Supreme Court last September that gave HOAs authority to attach “super-priority lien” status to a mortgage, this allowing them to extinguish a mortgage on a home where the owner is delinquent on HOA dues without going through the courts.

HOAs claim the super-priority lien status is necessary because it forces banks to pay the delinquent HOA dues and not leave responsible HOA members footing the bill to keep the HOA’s infrastructure intact, according to a report from the Reno Gazette Journal. Banks and lenders that have suffered huge losses in some cases when HOAs  have extinguished mortgages where the delinquent HOA dues amounted to a fraction of the balance on the mortgage claim that the super-priority lien law gives the HOAs too much power.

Furthermore, the Federal Housing Finance Agency (FHFA) issued a warning in December to HOAs that attach super-priority lien status to mortgages, saying that such loans will not push mortgages backed by Fannie Mae and Freddie Mac into the secondary position because of the risk they pose to taxpayers while the GSEs are under the FHFA’s conservatorship. FHFA general counsel Alfred Pollard testified before the Nevada State Legislature Judiciary Committee in early April, backing SB 306.

“By way of summary, FHFA does find that most of the provisions of SB 306 improve the situation for lenders and secondary market participants in Nevada and support common interest communities, while we continue to have concerns with other sections of the existing law and practices under that law,” Pollard said in his testimony.

The bill requires an HOA to provide the mortgagee with a formal statement of the amount of the deficiency along with a breakdown of all charges that will allow the mortgagee to address the lien payment if the unit owner does not, thus giving mortgagees the chance to protect their position. Other provisions of the bill include requiring the foreclosure notice to be published in a “public place” such as a newspaper or a county website, and provide that if a payment is made to the HOA for the amount of the dues deficient no later than five days before the foreclosure sale, then the HOA cannot legally extinguish the first lien.  In his testimony in April, Pollard called this a “prudent approach.”

Currently, 22 states allow HOAs to attach super-priority lien status to mortgages.

Source: DS News June 7, 2015.    Author: Brian Honea