The Nevada Supreme Court has issued its ruling on a law suit which has been making it’s way through the courts for the past few years. At issue was whether HOAs, which under Nevada law may claim a super priority lien for nine months worth of unpaid dues, could foreclose on their liens. Super priority liens take priority over all other liens, including mortgage holders. HOAs have been auctioning off properties whose homeowners have been more than nine months delinquent in their dues and investors have been buying these properties for extremely low prices. The lawsuit which started the issue on the road to the Supreme Court was the purchase of a house in Southern Highlands with a mortgage of $885,000 for $6000. The first mortgage holder sued the HOA and the buyer.
Another issue adjudicated was what exactly could be included in a super priority lien. The HOAs have long held that the costs of collection were also included in the lien, along with the nine months worth of delinquent fees. As many people have discovered, these costs can run into the tens of thousands of dollars, well more than the actual fees owed. The Court ruled that only the delinquent fees may be included in the super priority lien; collection fees may not be included.
One issue on which the justices did not reach a consensus was on which process should be used for HOAs to foreclose. Four justices held that HOAs could use nonjudicial foreclosure procedures; three justices argued that the HOAs should use the judicial foreclosure process. In this matter, majority rules.
Those investors who purchased properties from HOAs have been able to rent them or resell them at reduced market values. Now that they know they are not subject to other lien holders, these investors may rest easier. They will, however, have to quiet title in order to have insurable title to sell. It is also likely that these properties will sell for more at HOA auction than they have in the past, which raises the question of what happens to any monies paid for a property over and above what is owed on the super priority lien. Banks will have to make adjustments to make certain HOA dues are being paid or run the risk of being foreclosed out of their deeds of trust. A homeowner may be current on mortgage payments, but not on HOA dues. Lenders will have to develop a process to monitor these payments.
For more information, check out the article in today’s Review-Journal.