Nevada has been a hotbed of controversy on the issue of super-priority liens since the State Supreme Court ruled in September 2014 that homeowners’ associations (HOAs) had the authority to non-judicially foreclose on a property that is delinquent on its HOA dues.
Servicers have fought to protect their properties from super-priority liens because those liens allow HOAs to extinguish the servicers’ mortgage and sell homes for huge discounts, sometimes for pennies on the dollar. The FHFA has been close to the issue, having repeatedly issued warnings to HOAs that super-priority liens would allow them to foreclose on mortgage loans backed by Fannie Mae and Freddie Mac.
Recently, Judge Elizabeth Gonzales in the Nevada Eighth Judicial District gave servicers a victory in that battle [1], nullifying an HOA foreclosure sale that occurred in 2014 on a mortgage held by Bank of America. The bank presented evidence in the case of Nevada New Builds, LLC v. Bank of America that it paid the delinquent HOA dues which amounted to $1,305 (nine months worth of delinquent dues)—and that the HOA accepted the payment without communicating to the bank whether or not the payment was sufficient enough to protect the bank’s lien on the property and remove the super-priority lien.
The HOA foreclosed on the property, claiming the amount was not enough, but Gonales ruled that the HOA had not sufficiently proven that additional charges beyond nine months of HOA dues were not enough to give the HOA’s lien priority over Bank of America’s mortgage.
The judge also ruled that the HOA engaged in “unfair” behavior by refusing to provide the bank with sufficient instruction as how much should be paid.
Attorney G. Benjamin Milam of Bradley Arant Bould Cummings said that the ruling by Gonzales [1] will buoy lenders who try to overturn HOA foreclosures in cases where the HOA did not comply with the servicer’s good faith effort to protect its mortgage.
Last year, an amendment passed in the Nevada State Senate [2] that amended the rules regarding super-priority liens. HOAs are now required to give servicers sufficient notice that if they pay the delinquent HOA dues, the servicers’ lien will be preserved.