Guest column: State lawmakers given stern warning on HOAs

As the Nevada Legislature wraps up, state lawmakers have considered several issues important to homeowners and the local housing market. One of the most crucial and perhaps most complex concerns foreclosures by homeowner associations.

Groups representing HOAs have fought legislation to threaten or eliminate the so-called super priority lien that allows HOAs to collect up to nine months of unpaid HOA assessments when a bank forecloses on a home in an HOA. Super priority liens also give HOAs the authority to foreclose on delinquent homeowners and give associations first shot at collecting proceeds from the sale of a foreclosed home, ahead of the traditional first-lien position held by the mortgage lender.

This has been a contentious legal issue in recent years that has reached as far as the Nevada Supreme Court, pitting HOAs and companies that manage them against lenders and real estate investors.

The Nevada Association of Realtors worked with lawmakers to clarify these issues and balance the needs of homeowners, HOAs, lenders and others.

The issue is being watched closely by the Federal Housing Finance Agency, which regulates Fannie Mae, Freddie Mac and the 12 federal home loan banks. These government-sponsored enterprises provide more than $5.6 trillion in funding for U.S. mortgage markets and financial institutions.

Here’s what the FHFA had to say in reminding Nevada lawmakers why they should not pass any laws to allow HOAs in Nevada to extinguish liens government-backed entities place on homes facing foreclosure: “(Federal) law precludes involuntary extinguishment of Fannie Mae or Freddie Mac liens while they are operating in conservatorships and pre-empts any state law that purports to allow holders of homeownership association liens to extinguish a Fannie Mae or Freddie Mac lien, security interest, or other property interest. As noted in our Dec. 22, 2014, statement on certain super priority liens, FHFA has an obligation to protect Fannie Mae’s and Freddie Mac’s rights, and will aggressively do so by bringing or supporting actions to contest HOA foreclosures that purport to extinguish enterprise property interests in a manner that contravenes federal law.”

Those are pretty strong words from a federal agency.

The session is scheduled to end June 2. If lawmakers don’t heed these warnings, FHFA officials suggest lenders could seriously curtail or even stop making mortgage loans in Nevada. That would be disastrous, especially as our state’s housing market recovers from the recession and since stringent lending standards still make it difficult for many would-be homeowners to obtain a mortgage.

More than 14,000 Realtors in Nevada take such warnings seriously. We hope legislators do the same.

Kevin Sigstad is president of the Nevada Association of Realtors.

Tags: The Sunday

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