Is a New Bill Giving HOAs Too Much Control?
A ruling that could harm the recovering housing market is on the horizon. A Nevada Supreme Court decision could give homeowners associations too much power to foreclose on homes over unpaid HOA dues. The bill, AB 359, has not been heard yet, but David Gardner, Republican Assemblyman, said that it should be up for discussion sometime during the legislative session.
Super-Priority Liens
The “super-priority liens” that would be placed by HOAs says that up to nine months of HOA dues and collection costs be paid off first before a foreclosed home is sold. The HOAs say that this takes some of the pressure off of the members that are having to make up the difference in dues when their delinquent neighbors do not pay their dues. This affects the public areas, landscaping, and infrastructure of the community.
The Community Association Institute Legislative Action Committee said in an editorial, “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.”
AB 359 Too Far On Side of HOAs?
However, many real estate professionals and mortgage lenders believe that the balance of power is too far on the HOAs side and this can harm the beginning to recover housing market. This situation has caught the attention of The Federal Housing Finance Agency. An agency official testified before the Legislature on the matter and claims that it would aggressively challenge any HOAs who forecloses on federally backed mortgages.
Other bills are also being considered, including SB 306 that aims to give banks and borrowers more advance warning before mortgage liens are extinguished and homes go to auction. AB 240 has a medium level solution that would require “impound accounts”, where lenders store up money to pay HOA dues if they are defaulted upon to prevent HOAs from foreclosing on homes at a percentage of the home’s value.
While something needs to be done to help take some of the burden off of the members who pay their HOA dues in full and on time, real estate professionals stress that the “super-priority lien” is not the way to go if they want to continue to see gains in the real estate market.