The Nevada State Senate passed a bill at the last minute just before the end its legislative session that revises the provisions of a law that allows homeowner's associations (HOAs) to foreclose non-judicially on a residential home when the homeowner's HOA dues become delinquent, according to the Nevada State Legislature .
Nevada Senate Bill 306 , a bi-partisan bill sponsored by Nevada State Senators Aaron Ford (Democrat) and Scott Hammond (Republican) in March, was approved late last week just before the legislative session ended on Sunday. The bill was created in response to the controversy created by a ruling handed down by the Nevada State Supreme Court  last September that gave HOAs authority to attach "super-priority lien" status to a mortgage, this allowing them to extinguish a mortgage on a home where the owner is delinquent on HOA dues without going through the courts.
HOAs claim the super-priority lien status is necessary because it forces banks to pay the delinquent HOA dues and not leave responsible HOA members footing the bill to keep the HOA's infrastructure intact, according a report  from the Reno Gazette-Journal. Banks and lenders that have suffered huge losses in some cases when HOAs have extinguished mortgages where the delinquent HOA dues amounted to a fraction of the balance on the mortgage claim that the super-priority lien law gives the HOAs too much power.
Furthermore, the Federal Housing Finance Agency (FHFA ) issued a warning in December to HOAs that attach super-priority lien status to mortgages, saying that such loans will not push mortgages backed by Fannie Mae  and Freddie Mac  into the secondary position because of the risk they pose to taxpayers while the GSEs are under the FHFA's conservatorship. FHFA general counsel Alfred Pollard testified before the Nevada State Legislature Judiciary Committee  in early April, backing SB 306.
"By way of summary, FHFA does find that most of the provisions of SB 306 improve the situation for lenders and secondary market participants in Nevada and support common interest communities, while we continue to have concerns with other sections of the existing law and practices under that law," Pollard said in his testimony.
The bill requires an HOA to provide the mortgagee with a formal statement of the amount of the deficiency along with a breakdown of all charges that will allow the mortgagee to address the lien payment if the unit owner does not, thus giving mortgagees the chance to protect their position. Other provisions of the bill include requiring the foreclosure notice to be published in a "public place" such as a newspaper or a county website, and provide that if a payment is made to the HOA for the amount of the dues deficiency no later than five days before the foreclosure sale, then the HOA cannot legally extinguish the first lien. In his testimony in April, Pollard called this a "prudent approach."
Currently, 22 states allow HOAs to attach super-priority lien status to mortgages.