Regular readers of this blog know that I’ve preached from the street corners that an avalanche is coming which will send the American housing market into a massive tailspin. Billions of dollars will be lost and won. Ultimately, individual homeowners will be the big losers.
Remember the refrain? An avalanche starts with just a tiny imbalance, a molecule of ice falling from the crest of a snow ridge. But that tiny chip can hurl millions of tons of snow down a mountainside. Living in Colorado, all of us who love the outdoors have to be wary of this potential killer.
The Nevada Supreme Court might have just set off such a disaster. It ruled that a super priority lien, no matter how small, can destroy a first deed of trust. The implications for the Nevada housing industry are stunningly dismal. The court was narrowly divided. But the 4-3 majority ruled that a petty HOA lien can utterly wipe out the mortgage loan on a million dollar home.
A hundred dollar fine for a trash can left outside an hour after the deadline can be escalated into thousands of dollars in legal expenses and collection fees.
The boards of Homeowners Associations are cheering the news. This court decision now gives them unprecedented power to throw petty fines into the air to stifle any sign of dissent in a neighborhood. They’ll be able to grab million dollar properties and auction them off to fill the HOA budget.
Meanwhile, the boards of mortgage companies are now meeting to discuss two questions: Wouldn’t we be financial idiots if we ever loaned another dime to a Nevada homeowner? Or the alternative: How high shall we raise interest rates on every new mortgage to cover our expected losses?
Nevada! The nation’s focal point of HOA corruption is poised to do it all over again.
(link to Review-Journal article on court decision)
Look at the big picture. What’s going on here is a massive turf war between the key constituencies of CAI.
The real estate market remains competitive. When there was more than enough money to spread around, everybody was happy. Nowadays, there’s less fortune to share.
We now have Association Boards, real estate investors, and Management companies fighting against mortgage lenders. You know, the very mortgage lenders that made HOAs possible. Without financing – and easy financing – HOAs and Condominiums would never have become the pariah they are.
At the same time, we have Community Association attorneys sparring with CAMs and Collection Agencies for their pieces of the growing delinquency pie.
And, as I continue to point out, as communities age and deteriorate beyond repair, our local governments are called upon to take responsibility, or risk losing their tax base to blight or flight.
And now that the problems are becoming too large, too egregious to ignore, there is tremendous political pressure upon state officials. We are now starting to see reports of large HOAs seeking to incorporate as municipalities, or to annex to neighboring cities. Nationwide bad media coverage is forcing Florida politicians to address hostile corporate takeovers of condominiums. Here is government’s chance to be “heroes” in fixing problems they helped to create.
When the local government purchased the run-down, obsolete, developer-owned utility in the HOA where I once resided, they referred to themselves as “good guys” on “white horses” riding in to save the day.
The unraveling is happening right before our eyes.
This is a shock for sure. How does a lien get ahead of the mortgage? This is actually insane and I wonder how they could make such a ruling. It does make one wonder about the entire legal system in the state. I do not agree that it will add to increased interest rates. You are talking about losing the property which makes the loan really not secure. I do not see anyone in the right mind buying a property with an hoa but now you will not get the chance because you will not be able to get a mortgage. There is no way that they will be able to issue a mortgage. They will not raise the amount needed to buy because the risk is total loss of the property which means 20 percent will not be available when the property is sold after foreclosure. The legislature can step in and write a law changing this horrorable ruling. Few rulings truly shock the sense of security. We are all slaves to the hoa.
I want to share an opinion posted on another forum by a Florida collections professional:
On another disbussion forum, I posed the following question:
It’s hard to get past the obvious outrage – that an investor can deprive an owner of a home worth $850,000 (at least at the time of sale) for a mere $6,000. There must be a better way.
All this for a foreclosure based not upon the asset itself, but based upon unpaid monies for HOA services.
If HOAs begin to rush to foreclose before the banks,will Nevada see more of the same? Or will banks just start paying assessments while the property lingers in mortgage foreclosure limbo?
Here is the reply:
“MITCH DRIMMER (2,645+)
The Community Association Collections Specialist Who Will Recover Delinquent Maintenance Fees For Your Association.
Most likely if this ruling stands and the Nevada legislature does not repair the issue banks will pay delinquent assessments to associations in much the same way that they already pay the real estate taxes. Its rare (although it happens) that a property that owes taxes in a condo or HOA is lost to a tax deed sale.
The good news for associations is that they can now use their PUD and Condo riders to get the banks to pay the delinquent assessments (see my article in my newspaper column http://www.communitynewspapers.com/kendall-gazette/what-are-pud-condo-riders-and-how-are-they-best-used/
There was a similar ruling in Washington DC recently and if this catches on community associations will no longer need collection agencies or lawyers to recover delinquent maintenance fees and Deborah you will get your wish and never see an association foreclose on a unit owner again because the banks will do so.”
> Meanwhile, the boards of mortgage companies
> are now meeting to discuss two questions:
> Wouldn’t we be financial idiots if we ever
> loaned another dime to a Nevada homeowner?
> Or the alternative: How high shall we raise
> interest rates on every new mortgage to cover
> our expected losses?
see this video
http://video.foxnews.com/v/3817026395001/what-power-do-homeowners-associations-have/
via Deborah’s Twitter feed
What Power Do Homeowners’ Associations Have?
Oct. 02, 2014 – 4 minutes 11 seconds long
Fox News legal analyst Bob Massi weighs in
Massi makes two predictions:
1) since the banks no longer have the foreclosed home as an asset, the banks will go after the home owners (who have been divested of their property) for the mortgage owed.
It’s another form of “A Creditor’s Playland” (Evan McKenzie. November 05 2011): Mike Konczal demolishes the right-wing think tank Cato Institute for their unique brand of free-market capitalism: “I like this form of libertarianism, where policy is simply the things that defend the power and hierarchy of creditors, the rich and the elite, much better than the normal ‘gee whiz markets are cool’ kind. There’s almost a Nietzschean zeal for the wonk world to first and foremost accept creditors as a master class to whom all policy bends.” In this piece, Konczal is taking apart Cato’s bank-friendly, consumer-hostile prescriptions for the housing market.
2) lenders will include H.O.A. payments in escrow accounts — like they currently do with insurance and property taxes — and pay the H.O.A. corporations themselves
Think about the implications of that second prediction. Any fines or fees levied by the H.O.A. corporation will be paid by the lender, who will then include those fees in the mortgage payment. As a result, the H.O.A. corporation is insulated by the lender from the home owner. The home owner will have to challenge the bank, not the H.O.A. corporation, over any disputed fines and fees. It will create another perverse incentive and moral hazard for the H.O.A. corporation to pile on junk fines and junk fees, while making it even more impossible for a home owner to enforce his rights.
Americans must wake up and defend our rights against corporate interests.