Las Vegas Sun

February 27, 2024

Legislature 2013:

Higher dues for homeowners at stake in HOA legislation

Anyone living in a homeowners association in Nevada might want to pay attention to the next few weeks at the Legislature.

Lobbyists representing investors, debt collectors, property management companies, real estate firms and banks large and small have been discussing legislation that could result in higher association dues for homeowners and changes to who pays the lien on foreclosed homes in a neighborhood.

The high-stakes negotiations involve profits to be won and lost on assets that might be near and dear to Nevadans, namely their homes.

The negotiations essentially consist of what HOAs could or should be allowed to do when it comes to homeowners who stop paying their dues and how much HOAs can collect from the proceeds a bank eventually earns once a foreclosed property is sold.

In the balance are homeowners who held onto their residences during the recession or have purchased homes during the recovery. The outcome will determine whether they’ll have to pay extra to pick up the slack created when homeowners in their neighborhoods quit paying dues because of foreclosure — a situation that has grown more problematic in Nevada due to a recent slowdown in the foreclosure process.

“Whether or not they can own the house outright out from under the banks, whether or not collection costs are included, at the end of the day we want to be sure that the HOAs are not put in a position where they have to turn on their own homeowners but are able to collect what they need to collect,” said Assemblyman Jason Frierson, D-Las Vegas, who is shepherding last-minute negotiations with stakeholders as the legislative session enters its final days.

What the Legislature decides will likely affect what homeowners pay in association dues. For instance, stakeholders are essentially debating who should pay debt collection fees for delinquent homeowners in foreclosure: the neighbors or investors and banks?

It’s not an easy question to answer, especially when that very matter is the subject of conflicting government advisory opinions and each party involved — investors, property management companies, debt collectors, and banks — have competing interests. The matter has so divided interested parties that the state Supreme Court might need to get involved to sort this all out.

Homeowners are stuck in this legal limbo, while some of the same monied interests who are fighting each other in the courts have retained some of the most powerful lobbying firms at the Legislature to get lawmakers to change the law in their favor.

This longstanding battle has carried over from the 2011 legislative session, when legislators nearly reached agreement about who pays for debt collection costs on delinquent HOA dues once a house is foreclosed on, said Michael Buckley, real estate attorney with Fennemore Craig Jones Vargas and former commissioner on the Nevada Commission on Common Interest Communities.

“It’s a mess because banks are taking so long to foreclose,” Buckley said. “The HOAs are caught in the middle between the banks and the investors.”

Well-capitalized individuals or corporations can often snag a deal on homes when owners have fallen behind in both mortgage and homeowners association payments.

Assembly Bill 284 from the 2011 legislative session had the effect of slowing down foreclosures, leading to situations in which people stopped paying both their mortgages and their HOA dues.

As foreclosures slowly wound their way through the process, HOAs could place liens worth hundreds or thousands of dollars on these delinquent homes.

Investors then buy the liens, allowing them to take control of the home and rent it out before the slow-moving banks finally swoop in with a final foreclosure.

This is a problem for Frierson.

“The last thing you want is a house to be foreclosed on for $500 or $5,000 with all the late fees that is worth $500,000 because somebody was late on their HOA dues,” he said.

“I don’t think that’s good for anybody.”

Banks still have the right to foreclose on a house, albeit sometimes without haste.

They have “first security interest,” legal lingo meaning they’re just about first in line when it comes to repossessing a property.

But HOAs get the first cut, reserving the right to receive payment for up to the first nine months of overdue charges, something called a “super priority lien.”

The associations want to get these payments so that members aren’t subsidizing costs for their neighbors.

But banks slowing the foreclosure process means property management companies and homeowners associations aren’t getting paid.

So some stakeholders want to rip the banks out of the process.

“Right now, they see the only way they can force the banks to pay the back assessment is by threatening to extinguish the first (security interest),” Frierson said. “That’s kind of the nuclear option. I think investors would prefer that the underlying loan be extinguished because that means they can buy a house for really cheap. I don’t think that’s good for the banks or the community either.”

Others believe the problem would disappear if banks foreclosed and paid HOAs in a timely manner.

The homeowners may rely on reserves for awhile, but eventually they’ll be directly affected because HOA assessments will be spread among a smaller pool of homeowners who haven’t abandoned their properties or stopped making payments, said Will Wright, a Las Vegas attorney with interests in HOAs.

Frierson said the solution involves stopping costs from rising on homeowners.

“The conversations we’re having are about trying to make HOAs whole,” he said. “If they see they’re going to be made whole, they’re not going to have to raise prices on remaining homeowners.”

But don’t look quite yet for a deal, or even a bill.

The official vehicle for these changes is Senate Bill 280, but the twists and turns of the legislative process have taken it down a strange path.

SB280 passed the Senate on a party-line vote with Democrats in support and Republicans opposing. But if you read the bill today, you’re reading ancient history in legislative terms.

When it reached the Assembly, lawmakers ripped the guts out of SB280 and stuffed language dealing with the super priority liens inside. But even that language is set to change, as a new amendment is pending.

Then, if the new SB280 passes the Assembly, the Senate has to accept the new version. If it doesn’t, then representatives from the two bodies meet to negotiate yet another version of the measure.

If you’re looking for some clarity about this change to homeowners associations, don’t try calling the bill’s sponsor, Sen. Ruben Kihuen, D-Las Vegas. His original bill was the one legislators gutted and he no longer has any part in working Senate Bill 280.

Now Frierson is in charge.

“As with everything at the end of session, we’re working with legislators and trying to include stakeholders and having a real fruitful conversation,” Frierson said. “Right now we have HOAs that need to be able to operate and they are unable to operate because they cannot collect the assessments they need. Out of frustration, they’re foreclosing on homes based on that. We have to find a way to get HOAs their money without being in a rush to foreclose on homes.”

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