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Recent Nevada Supreme Court Ruling Rocks the Mortgage Industry

By
Real Estate Technology with http://www.medicalandspaconsulting.com

The Nevada Supreme Court recently declared that HOA liens have superiority over home loans and that HOAs can legally “extinguish a first deed of trust non-judicially on a residential property.”Accordinlgy, an HOA can legally foreclose on a property with delinquent HOA dues or fines without going through the courts. Additionally, once the property is sold, the borrower no longer has a legal obligation to repay the mortgage loan, although funds from the sale may be used to satisfy part or all of the debt. Not surprisingly, mortgage lenders are quite alarmed by this ruling, which they say could “spell disaster for the mortgage industry as a whole”.

 

The ramifications of the ruling are clearly evident in one of the cases that the Nevada Supreme Court deemed “central” to the issue. A Nevada HOA sold a Las Vegas home with an $885,000 note on it for $6,000 in order to recoup delinquent HOA fees. The investment firm that purchased the property was able to successfully block Bank of America from foreclosing and auctioning off the property again after the investors made the purchase from the HOA, arguing that the mortgage had been extinguished by the HOA auction. The Supreme Court agreed, saying that Bank of America should have paid off the HOA lien if it did not want the loan extinguished. The Mortgage Bankers Association (MBA) has since stepped in to note that in many cases, HOAs will not disclose the amount of delinquent fees owed and also do not have to accept payment from lenders.

While mortgage lenders are not fans of the Nevada policy, real estate investors definitely are. “This is one of the greatest returns in real estate that I’ve ever seen,” crowed the director of one investment firm that promptly purchased multiple Nevada properties at HOA foreclosure auctions. However, warned David Stevens, president of the MBA, “If the decision stands, banks will have to account for it by raising mortgage rates in Nevada.” Another investor fired back at Stevens, saying simply, “Lenders should have been aware of this risk”.

Paddy Deighan J.D. Ph.D

http://www.medicalandspaconsulting.com

Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate Services

Paddy,  Pretty remarkable stuff. Several years ago a client of mine abandoned their home and left it to be foreclosed.  Over the course of two years things changed a like in the short sale world.  The HOA started the foreclosure proceeding.  When the client got the notice they consulted with an attorney who advised ... you better do a short sale .... and that is how they became a client.  The only difference, in CA they would have owed the debts to the mortgage lender(s) had the HOA foreclosed and sold the property.

Oct 20, 2014 06:13 AM
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

While extreme I agree whole-heartedly. If I owned that note and got that message I would have paid the 6k and tagged the borrower for it and then if refused to pay started the process to foreclose and protect my interest. BofA???? what a bunch of buffoons

Oct 20, 2014 08:38 AM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

     I would assume that an Appeal is on the horizon.  And/or some Lawmakers are being coached on re-writing the laws.  The Big Banks are not going to take this lying down.

Oct 20, 2014 08:41 AM
Paddy Deighan MBA JD PhD
http://www.medicalandspaconsulting.com - Vail, CO
Paddy Deighan J.D. Ph.D

I agree David.....arrogance on the part of the lenders....they are put on notice and then do nothing. They should have learned about this from Florida

Oct 20, 2014 08:42 AM
Paddy Deighan MBA JD PhD
http://www.medicalandspaconsulting.com - Vail, CO
Paddy Deighan J.D. Ph.D

Fred, this was the appeal...Nevada does not haev an appeals court..appeals go directly to the state Supreme Court

Oct 20, 2014 08:43 AM
Roy Kelley
Retired - Gaithersburg, MD

This is a very interesting case and a good way to force lenders to take care of HOA obligations.

Oct 20, 2014 10:54 AM