Nevada homeowner associations and their collection agencies have prevailed in the latest court ruling in disputes over collection costs for unpaid HOA assessments.
The Nevada Supreme Court on Wednesday ruled the state Financial Institutions Division (FID) was wrong to cap the assessments and collection costs that purchasers of foreclosed homes must pay. These assessments and costs typically accumulate for months while the homes sit vacant during the foreclosure process.
The state agency, which regulates collection agencies, in November 2010 issued an advisory opinion and declaratory order capping the lien that HOAs can place against foreclosed homes at an amount equal to nine months of assessments. That amount can include both assessments and collection costs. The FID also threatened to penalize HOAs that didn’t comply with its new cap.
Attorneys for collection agencies successfully challenged the ruling in a Clark County District Court lawsuit, arguing that the state Real Estate Division, not the FID, regulates HOA collection costs. The lower court ruling was appealed to the state Supreme Court.
The Real Estate Division has a board regulating HOAs called the Commission for Common Interest Communities and Condominium Hotels (CCICCH). In 2010, it issued its own opinion interpreting Nevada law saying that HOA liens can include collection costs and interest on top of the past-due assessments. The assessments in the liens are limited to either six or nine months depending on the circumstances.
The CCICCH did cap most collection costs at $1,950.
After oral arguments in February, the Supreme Court on Wednesday sided with the HOAs and collection agencies in upholding the lower court order.
''The CCICCH and the Real Estate Division are responsible for regulating and administering'' the chapter in Nevada law governing the collection costs, the Supreme Court ruled.
''There is no provision granting any other commission or department the authority to regulate or interpret the language of the chapter,'' the court wrote in its order.
David Stone, president of collection agency Nevada Association Services, which had challenged the FID opinion, called Wednesday’s order ''a huge victory for Nevada homeowners associations and residents.''
''This order from the Nevada Supreme Court affirms that the Financial Institutions Division overstepped its authority when it issued an advisory opinion regarding HOA law NRS 116. We continue to be committed to protecting Nevada homeowners associations and those who reside in them,'' Stone said in a statement.
Wednesday’s order likely isn’t the last word on the matter, as investors in foreclosed homes are pressing several lawsuits against HOAs.
The investors claim they are being gouged when purchasing homes by being forced to pay unauthorized collection costs that accumulate while the homes are in foreclosure.
They expect one of their cases to result in a ruling by the Supreme Court interpreting Nevada law on the issue – and are pressing a massive lawsuit alleging fraud against hundreds of HOAs and lenders over the issue.
The HOAs and the collection industry, however, say the investors are just trying to profit at the expense of HOAs that have seen their budgets challenged by a surge of foreclosures during the recession.
With Nevada leading the nation in foreclosures, the HOAs say assessment payments are down and they need all the revenue they can get to maintain community common areas and services.