A RECENT NEVADA SUPREME COURT DECISION THAT ALLOWS HOMEOWNERS ASSOCIATIONS TO TRUMP MORTGAGE LENDERS IN FORECLOSING ON HOMES SENT A SHOCK WAVE THROUGH THE MORTGAGE INUDSTRY LAST WEEK. THE RULING IN ESSENCE ALLOWS HOMEOWNERS ASSOCIATIONS TO SELL A PROPERTY TO THE HIGHEST BIDDER, FOR EXAMPLE $3,000, $4,000 OR $5,000 AND EXTINGUISH THE DEBT A MORTGAGE LIEN HOLDER HAS, WHICH IN THE NEVADA CASE WAS $885,000.00
THE NEVADA CASE CENTERED AROUND A $6,000 DEBT OWED TO THE HOA. THE BANK WAS OWED $885,000.00 HOWEVER, AFTER SELLING AT AUCTION FOR $6,000.00, THE COURT RULED THAT THE SUPER PRIORITY LIENS HELD BY HOA’S FOR UNPAID ASSESSMENTS TAKE PRECEDENCE OVER FIRST TRUST DEEDS HELD BY BANKS OR OTHER MORTGAGE LENDERS. THE NEVADA COURT FURTHER HELD THAT HOA’S DO NOT NEED TO GO THROUGH THE COURT SYSTEM TO SEIZE THE PROPERTY. THE RULING ALLOWS HOA’S TO LEGALLY FORECLOSE ON THE PROPERTY BY SELLING THE PROPERTY AND EXTINGUISHING THE DEBT.
WHILE THE LAW COMPELS HOMEOWNERS TO PAY THEIR DUES AND ASSESSMENTS TIMELY TO THE HOA, THIS LEAVES THE BANK’S HOLDING MORTGAGES HIGH AND DRY TO FORECLOSE THE PROPERTY TO SATISFY THE DEBT. LENDERS VIEW THE DECISION AS A RECIPE FOR DISASTER, SINCE IT WILL SET THE PRECEDENT FOR OTHER STATES TO DO SAME.
IF FLORIDA WERE TO FOLLOW SUIT, HOMEOWNER ASSOCIATIONS THAT HAVE DELINQUENT MAINTENANCE AND ASSESSMENTS AND NEEDED TO COLLECT, COULD SIMPLY SELL THE PROPERTY TO SATISFY THE LIEN AMOUNTS DUE THEM, AND MORTGAGE DEEDS OF TRUST WOULD BE EXTINGUISHED.
THE NEW LAW GIVES THIRD-PARTY INVESTORS A HUGE WINDFALL SINCE PURCHASING PROPERITES FROM AN HOA WITH MORTGAGES, SOMETIMES TWO MORTGAGES, IS A SHORT TERM WIN. ONCE THE MORTGAGE WAS AUCTIONED IN FORECLOSURE, THAT LIEN BEING CONSIDERED SUPERIOR IN FLORIDA COURTS, TRUMPED THE CERTIFICATE OF TITLE TO THE INVESTOR, CAUSING THEM TO LOSE THEIR INVESTMENT.
IT REMAINS TO BE SEEN THE LONG TERM EFFECTS THIS WILL HAVE FOR NEVADA HOA LIENS AND FORECLOSURE LAW AND WHETHER FLORIDA AND OTHER STATES WILL FOLLOW SUIT.
TRUST | COMMITMENT | RESULTS