It's been awhile since I've posted but this one is pretty important for any home owners and potential home buyers.
I'm not an attorney but I'll try to explain this as best as possible in layman's terms.
To all my attorney friends... feel free to chime in and let me know if something is inaccurate.
What happened? In a recent ruling by the State of Nevada Supreme Court, HOA liens can knock out first deeds of trust (mortgage liens).
How does it work? Let's say you don't pay your HOA dues or fines for awhile and accrue a bill of $5,000-$6,000. The HOA files the Notice of Default and ends up foreclosing on the home or it's sold to the highest bidder at the courthouse. In the past, the HOA or courthouse investor would now be subject to any mortgages on the property. Essentially, they would have brought debt upon themselves. With this new ruling the new owner has now wiped out the mortgage and owns the property free and clear.
Full article from the Review Journal here... Super Priority Liens
- Lenders will no longer lend on HOA properties in Nevada. I doubt this will happen.
- Lenders will require HOA dues to be included in the mortgage payment and impound account. Buyers would have less purchase power and higher closing costs upfront.
- Lenders will counteract the higher liability with higher interest rates, new monthly HOA default insurance, additional owner reserves for potential fines, or higher closing costs. This could put downward pressure on home values as the requirements and cost to get into a home and sustain payment affects potential buyers and their price ranges.
- Lenders won't change a thing. Nevada isn't the only state with this law.
- The foreclosure rate of HOA delinquencies may increase. HOA's can now get rid of those burdensome properties with less liability.
- Investor will get screaming deals with cash at the courthouse. NRES NV1 (Reno's biggest foreclosure and flipping company) has been doing this for at least a year betting on a ruling in their favor.
- Investors won't get screaming deals. After the bust everyone started figuring out there was money to be made on the courthouse steps bids started getting higher and returns lower. The windfall ended. The same will happen with this.
- Underwater home owners stop making HOA payments on purpose (without a hardship). Let the HOA foreclose and have a buddy or yourself (as an LLC) buy it back for current market value at the courthouse or directly from the HOA.
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