LAS VEGAS, Nev. (4/9/15)--A state bill intended to address the appropriate exercise of certain lien rights of common interest communities, such as condominium complexes, developments of single family homes, and cooperative apartments, moved forward last week.
The Nevada State Senate Judiciary Committee approved SB 306. The bill, in part, intends to address a 2014 Nevada Supreme Court ruling that held Homeowners Association (HOA) liens on foreclosed properties have priority over mortgage liens. It also held that an HOA has the power to foreclose on homes to satisfy the HOA's lien, thus wiping out the mortgage lenders interest.
The Nevada Credit Union League has worked as part of a broad coalition to support legislation that would address the rights both of lenders and HOAs.
The league has said that credit unions in Nevada have experienced situations where HOAs have recovered their unpaid dues via foreclosure sales for proceeds that are well below market value. In the process, those below-market sales have wiped out hundreds of thousands of dollars in mortgages owed to credit unions.
"Such sales significantly harm the condition of credit unions that have extended those mortgages in good faith based largely on the underlying market value of the home used as collateral."
"In addition, they also adversely affect all other property owners in the surrounding area who see the market value of their homes needlessly fall because other similar properties have been sold at dramatically reduced prices by HOAs," the league has written in its analysis.
Wayne Tew CEO of Clark County CU and chair of the Government Relations Committee of the league told News Now, "SB 306 is a great example of how legislation can work. Nevada state senators, credit union CEOs, lobbyists representing credit unions, league staff, banks, mortgage companies, and HOAs have been very engaged in making this legislation become something workable for all parties involved."
Last week, Alfred Pollard, the general counsel of the Federal Housing Finance Agency, testified on behalf of some of the provisions of SB 306. The League also testified at the state Senate Judiciary Committee hearing.
Pollard noted in his testimony that without adequate remedy, the Supreme Court ruling could have a disruptive effect on the secondary market for home loans. American Banker reported in January that FHFA attorneys late last year sought to block two HOAs from foreclosing on residents who owed them money and whose mortgages were held by Fannie Mae.
"Extinguishing property rights is no inconsequential matter," Pollard told state lawmaker's in his testimony. "FHFA, which operates under federal law addressing such matters, must consider this as Fannie Mae and Freddie Mac review not only the legal issues involved, but as well the underwriting standards that apply in states that maintain such potential extraordinary remedies.
"FHFA has an obligation to protect Fannie Mae's and Freddie Mac's rights."
According to the Community Associations Institute website, there are 22 states, plus the District of Columbia and Puerto Rico, with some form of assessment priority lien statutes. The states are identified as Alabama, Alaska, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Washington, and West Virginia.