HOAsuperPriorityLien.com
Click on the link above to get to the UNLV Lied Institute for Real Estate and Nevada Assocaiation of Realtors 2017 study regarding how HOA foreclosures have depressed the Nevada real estate markets by over $1 billion in lost value.
In short, every home in an HOA loses 1.7% of value when the HOA forecloses on a property for delinquent assessments.
Wouldn’t it make sense for the owners in an HOA to buy a property or have a bake sale to kep a delinquent owner afloat rather than lose value on your home because some assessments are delinquent?
The reason that doesn’t happen is because the HOA debt collectors have a GIANT scam going where they sell these houses in secret to their connected speculators and not only the person who loses his or her home gets screwed, but everybody in the HOA pays for the debt collector and the speculator to get rich.
What is a super-priority lien?
HOA owners in 22 states are at risk of this scam
Mortgage-backed securities screwed us all
HOA foreclosures can occur when the HOA auctions off houses to collect unpaid assessments. Nevada law protects HOAs to the extent that nine months of delinquent assessments have “super priority” over the first security interest of a lender.
This has been a very big deal since the economic meltdown in 2008 caused property values to come crashing down.
Lots of people started defaulting on their mortgages when balloon payments and/or rate adjustments came due on houses that were “underwater” with loan balances exceeding what they could sell the house for.
Remember all the bank-owned houses around that the banks were not maintaining?
The banks also weren’t paying HOA dues, and so whole communities or condominium projects failed and went bankrupt.
The banks are definitely villains in this scenario.
The HOA receives owner assessments in order to have sufficient funds to operate and reserve, and the banks weren’t paying and they weren’t taking care of the properties, and in many cases, they wouldn’t or couldn’t sell them.
By “couldn’t sell”, I mean that there was a lot of foreclosure fraud going on because it was extremely difficult to establish who actually was entitled to ownership of the debt.
So many bank failures and mergers caused part of the confusion.
Remember Wachovia, Washington Mutual, Countrywide Home Loans?
All gone.
A second and even bigger problem was Wall Street’s greedy and fraudulent securitization of high-risk adjustable mortgages into incomprehensible “synthetic derivatives”. By slicing and dicing individual mortgages into such products as collateralized debt swaps got the whole mortgage securities market in the world further and further away from knowing who owned any particular loan. These financial instruments were so complex, nobody expected them all to start failing at once. (The movie, “The Big Short” explains all this in a very funny and accessible fashion.) Anyway, the banks, being “too big to fail” and all, were bailed out. Remember the Troubled Asset Relief Program (TARP)?
So, as I’m telling you all this, don’t ever feel sorry for the banks. No matter how crooked they were. No matter how badly they screwed over poor people by putting them into loans they couldn’t afford or even understand, our tax dollars bailed them out and nobody went to jail for crashing the world economy.
Back to what this has to do with HOAs
HOAs depend on assessments for the money needed to maintain the quality of the common areas and to operate facilities and programs that define the lifestyle people bought into. So the state law gives the HOA the right to foreclose ahead of the bank for nine months of assessments. This started happening a lot not just because the owners walked away from their mortgages, but because the banks were really slow to foreclose because in lot of cases they couldn’t figure out who owned the loan and nobody actually had the original note (I.O.U.)
So the banks decided that they better gin up some phoney ownership papers, and there were literally millions of home loans in this limbo. So many that the banks started using “robo-signers”, low level employees who would sign documents using phony titles to pretend they are bank officials authorized to assign the loan, like MERS Secretary or Vice-President. this fraudulent scheme was carried out for quite a while by some well known entities, like Bank of America, Wells Fargo, etc. Since MERS is a privatized (bank-owned) way to avoid recording of rapidly-shifting property transfers or loan assignments, they got away with it a lot particularly in Nevada which was the hardest hit state in the nation.
In 2011, Total Mortgage.com blog reported:
The housing market in Nevada is so bad, that according to Corelogic’s 3rd Quarter Negative Equity Report, as of November, 58.3% of homes with mortgages in Nevada are underwater, while 4.8% have near negative equity. Total home equity in Nevada among homeowners with mortgages is less than -$10.3 billion, making the average loan-to-value ratio in the state 110.2%. Nevada is the only state that has a net negative home equity.
As a result of this disaster, Nevada has been one of the most aggressive states in fighting mortgage abuses. In October, Nevada passed a tough anti-foreclosure law that makes it a felony for a lender, servicer or trustee to make false representations or claims over a title. In the wake of this law, foreclosures in Nevada plummeted.
Mortgage fraud by the banks and loan servicing companies was slowed even further by a 2012 $25 Bllion settlement between B of A, Citibank, JPMorgan Chase, Loan Services and Wells Fargo involving 49 states Attorney Generals and the Justice Dept.
In Nevada, strong anti-foreclosure fraud legislation went into effect in 2011, The bank foreclosure came to a slamming halt once the (real) bank officials could be charged with a class D felony if they signed false affidavits to reassign the loan in the official county records. Bank foreclosures dropped 88% in the month following the passage of the anti-foreclosure law (October 2011), according to the Wall street Journal.
So, the good news was that banks couldn’t foreclose on homes they didn’t actually own. The bad news is that the majority of those bank-owned properties were in one of the over 2,500 HOAs in Nevada so delinquent assessments began piling up.
What happened to the HOAs that weren’t getting paid assessments for all these bank-owned properties? What happened to the property values as the number of distressed properties increased? I imagine some HOAs went into bankruptcy. Others HOAs passed the cost of the vacant properties over to assessment increases to the remaining owners. Some HOAs really upped the speed at which they foreclosed on properties themselves so they wouldn’t be left holding the bag.
In SFR Investments Pool 1 v. US Bank, 130 Nev. Adv. Op. 75 (9/19/14), the Nevada Supreme Court apparently fed up with the banks’ refusal to pay the HOA assessments while they were holding the title, ruled that bank’s security interest was extinguished in its entirety by an HOA foreclosure sale. Big, big loss for the lenders. Big win for the HOAs? Of course not. the big winner was the buyer at the HOA foreclosure sale who (as in this Southern Highlands case) bought the house for under $10,000 and wiped out the banks’ nearly $900,000 loan.
Wow! Big, big win for buyers at HOA foreclosure sales. So, what’s wrong with that? Aren’t get rich quick schemes something we all secretly hope will fall in our laps? Are we just jealous that someone other than us got a fantastic windfall at the expense of the bank? Well, maybe there’s some of that, but what’s wrong with that is the seeds of corruption have been sown.
Let’s not forget what happens when a loophole or a drastic shift in market conditions creates an opportunity to make a huge profits for investing very little and doing very little work. Obviously, every flim-flam man comes out of the woodwork. But worse, otherwise honest people get tempted by get-rich quick schemes and start crossing ethical boundaries. Fiduciaries, like HOA managing agents, HOA debt collectors and HOA attorneys get dollar signs in their eyes and forget whose interest (HOA homeowners) they are legally required to protect. And never underestimate how hard the banks will fight to keep their ill-gotten gains from being stolen by another opportunistic thief.
So, where does that leave HOAs and HOA homeowners? You guessed it. Holding the bag. Even though the mortgage crisis is over and the Las Vegas valley housing market is recovering, there are huge residual financial impacts affecting SCA and other Nevada HOAs.
HOAs are stuck in the middle of expensive legal battles between the banks and the buyers at HOA sales. Worse, HOAs are accountable for wrongdoing of HOA managing agents, debt collectors and attorneys, when they, usually unbeknownst to the Board, took illegal shortcuts to make a speedy sale or took profits unlawfully.
- There are literally thousands of HOA foreclosure cases in the state and federal courts in Nevada. (I think SCA has five active cases) and thousands, if not millions, of attorneys’ fees are racking up.
- Cases filed in state court are bound by the rulings of the Nevada Supreme Court that recently reaffirmed its decision that HOA foreclosures extinguishes the lender’s security interest.
- make their determination of the Federal court
- Most of these cases involve the buyer at the HOA sale suing to get “quiet title” from the bank, but the HOA named because the sale was conducted under the legal authority of the HOA.
In 2016, I wrote a letter to the Review-Journal Editor, in response to the R-J September 11, 2016 editorial about how unfair the HOAs were to confiscate the bank’s property without due process. My main point was the banks don’t own the property unless they legally foreclose. It’s the homeowner who loses when the HOA forecloses without proper notice or when the bank takes possession without foreclosing.
But what if the method defined in NRS 116 actually pushes costs to ALL HOA owners that can be orders of magnitude greater than absorbing or forgiving more the bad debts ?
According to a May 2017 study by the Association of Realtors and UNLV LIED Institute showed that HOA foreclosures reduced the value of ALL Nevada homes by 1.7%, and that the controversy over HOA’s super-priority lien status has decreased the willingness of lenders to lend for the purchase of homes in HOAs.
Since 57 % of Nevada homes are in 3,000+ HOAs, this is a very big deal. Some consider that this is a factor in Las Vegas’ sluggishness in returning to property values that existed before the economic meltdown that occurred a decade ago when mortgage-backed securities became worthless seemingly overnight.
The Reno paper published an article about the study, but the Las Vegas Review Journal did not.