Friday, January 29, 2010

Tensions between HOA super liens and purchasers at foreclosure

I've been away for awhile and am happy (and grateful) that my fellow bloggers have contributed such interesting posts over the last few months.  I have really enjoyed reading the posts and learning from them.

My contribution today comes, fittingly, from Nevada.  Nevada, in addition to approximately fifteen other states, has enacted a super lien law in the wake of the foreclosure crisis.  Under this law, a lien imposed by a homeowner association on a house jumps ahead in priority over earlier recorded liens, including mortgages.  As a result, a purchaser must pay off the HOA lien at foreclosure in order to own the title free and clear.  Under the Nevada statute, HOAs are able to collect up to nine months of delinquent assessments as well as other charges through the super lien process.  What is unclear, and now the subject of a lawsuit, is exactly how much HOAs can charge above delinquent assessments.  Purchasers at foreclosure argue that they are routinely surprised late in the foreclosure process when HOAs (and, more often, their collection agencies) deliver shockingly high bills that include collection fees, penalties, and interest charges.  HOAs argue that these fees are necessary to keep communities afloat in light of the high rate of foreclosures.   

Because the Nevada legislature meets sparingly (it is next due in session during the Winter/Spring of 2011), it will likely be up to the courts to settle the statutory ambiguity.  What I find interesting in this dispute is that the only entities capable of engendering more ill will than over-zealous lenders are HOAs.  In their defense, HOAs are often a homeowner's last defense in this foreclosure crisis by maintaining the quality of surrounding homes.  On the other hand, many see these perceived, excessive HOA charges as yet another manifestation of unchecked and intrusive power over homes and communities.

Ngai Pindell

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Ngai - Welcome back! In a funny coincidence, my students and I were talking about HOA's in class yesterday. Two of my students are working on projects re: overzealous HOAs standing in the way of, respectively, affordable housing and environmentally friendly upgrades (e.g. xeriscaping and solar installations). I reminded them of an old X-Files episode where Mulder & Scully went undercover in a gated community to investigate the disappearance of several homeowners. Turned out the head of the HOA had used witchcraft to create a monster that attacked people who violated the HOA rules. The scenes of David Duchovny putting out increasing tacky lawn ornaments in an attempt to draw the monster out were priceless!

Posted by: Jamie Baker Roskie | Jan 30, 2010 4:50:38 AM