Things are tense in Carson City as well-funded banker and realtor groups lobby lawmakers to eliminate the super priority lien statute which is critical for homeowners and the local housing market. Since 1992, the super priority lien statute has allowed HOAs to collect originally six, and now nine, months of unpaid assessments when the bank forecloses its lien on a delinquent owner.
This provision was largely non-controversial until a recent Nevada Supreme Court decision in SFR Investments Pool 1, LLC v. U.S. Bank, N.A informed lenders that the statute creates a true priority for HOA liens. Lenders who ignore HOA foreclosure notices can see their lien extinguished if they fail to satisfy the delinquent assessments before the HOA forecloses on a delinquent owner.
The bankers and realtors warn that if lawmakers do not eliminate the super priority lien, lenders may stop making mortgage loans in Nevada, or charge higher fees. What they do not tell Nevadans is that 21 other states have similar super priority lien statutes and lending has continued in those states unabated. They also are not telling Nevadans that Fannie Mae, Freddie Mac and HUD all require lenders to pay HOA assessments to maintain the priority of their loans, and then reimburse the lenders for those payments.
To understand why eliminating the super priority lien is such a bad idea, it is important to know two things. First, until the Nevada Supreme Court informed lenders that ignoring a HOA foreclosure could extinguish their first security interest, lenders were content to allow HOA assessments to accumulate, knowing that when they did eventually foreclose, the lender would only have to pay the HOA nine months of assessments. The super priority lien is the only “motivational tool” HOAs have with the banks.
Second, about 42 percent of Nevada households (500,000+ homes) are part of a homeowner or condominium association. HOAs carry out their responsibilities to maintain roads, parks, and buildings by collecting assessments, just as government collects taxes to fund its responsibilities. HOA expenses do not stop when a homeowner stops paying assessments. By the time a lender forecloses, the nine months of assessments recoverable through the super priority lien is usually just a fraction of the total amount owed to the HOA. However, those nine months can be the difference that allows an HOA to avoid drastically increasing assessments or cutting services.
If the bankers and realtors succeed in eliminating the super priority lien, the entire burden of unpaid assessments will shift to those owners that do pay while banks continue to strategically delay foreclosure. Once again, the homeowners that have worked hard to play by the rules will end up paying the price. It is time to protect homeowners, not predatory lenders.
Who agrees with this opinion? The Community Association Institute Legislative Action Committee reached out to HOAs across the state, and in two days 69 Nevada HOAs representing 27,489 homes signed on to urge the Nevada Legislature to retain the super priority lien.
Norm Rosensteel and Donna Zanetti, Esq. are co-chairs of the Community Associations Institute (CAI) Legislative Action Committee representing the interests of homeowners, community associations, and business partners in Nevada.