Nevada’s crash in the housing bubble burst of 2007 was second only to California’s, leaving lenders and homeowner’s both plain out of luck for a lot of their investments, and only in the last year and half has the state seen anything close to significant recovery. Only a year ago, Nevada still led the nation in the number of individuals with underwater mortgages, forcing the State Supreme Court to make some decisions about whose vested interests in properties take priority in foreclosures. The thing is, as a Las Vegas real estate attorney would tell you, is that lenders get kind of screwed in the Supreme Court ruling that allows first deeds of trust to be extinguished when homeowners associations’ liens get involved.
Here’s what we mean: ever since September 2014, the Nevada Supreme Court held that an HOA’s foreclosure sale “to recover assessments categorized as super priority amounts (or nine months of regular assessments, plus any amounts required for abatement)” means that the lender’s previously-recorded first deed of trust on the property means doodley-squat (a technical term). Under this ruling, HOAs have been auctioning off properties left and right to recover their lien money, essentially screwing lenders out of their own rights to foreclosing on a home themselves in an attempt to recover some of their own money.
Luckily for lenders, more than one Las Vegas real estate attorney is around who is well-versed enough in the implications of the September ruling to help them fight back. “There are a number of bases on which lenders can defend a claim by the HOA or third party purchases that the HOA lien extinguished a first priority deed of trust.” They are as follows:
If the loan is an FHA loan, federal law supersedes Nevada law, meaning that if a foreclosed property was subject “to a mortgage insured by the federal Department of Housing and Urban Development,” then the federally insured mortgages preempt and invalidate any action by the HOA to extinguish the deed of trust. Tada.
Get your Las Vegas real estate attorney to dig a little deeper: “HOAs often fail to follow Nevada’s procedural rules regarding serving the notice of default to the lender…and often fail to provide lenders with any payoff quote for super-priority amounts, even when the lender makes a specific request.” These failures represent violations of the lender’s due process rights, and “could invalidate the HOA’s foreclosure sale.” It’s like magic, waiting for someone else to screw up.
Finally, read over the HOA’s Covenants, Codes, and Restrictions veryIn fact, have your legal counsel read over them, too. A Las Vegas real estate attorney could find something that both lenders and the HOA (conveniently, it would seem) gloss over: that “CC&Rs typically contain a mortgage savings clause that provide that no HOA assessment shall take priority over a first deed of trust.” Boom: breach of contract claim.
It’s not too late for lenders in Nevada, even as HOAs are scurrying around trying to get above water. Well guess what, homeowners associations—so are lenders, and even if it’s not a fancy Supreme Court decision, they’ve got some good legal ammo, too.