Nevada HOA Lien to Nullify 1st Deed of Trust

Investors

Real estate investors and mortgage lenders in Las Vegas are set to face off in a dispute that may involve the ruling of the Supreme Court.

Las September 18, the Nevada Supreme Court ruled that a  lien held by a homeowners association (HOA) can override a deed of trust involving a first mortgage on the property. This may lead to prices at HOA auctions equal or similar to prices at lender foreclosure auctions. The case potentially has effects on future rulings at a national level.

In SFR Investments Pool 1, LLC v. U.S. Bank, the court ruled that the Nevada HOA lien statute is based on the Uniform Common Interest Ownership Act of 1982, reasoning that an HOA “super-priority lien” was superior to a first deed of trust, extinguishing the latter.

It involved a Las Vegas home purchased in 2007 with an $885,000 mortgage originated by Bank of America in Southern Highlands, a well-known common interest community in Las Vegas. In 2012, the homeowner defaulted on the mortgage and the HOA dues. So both groups — U.S. Bank (the trustee) and Southern Highlands Community Association — moved to seize the property.

But the HOA — Southern Highlands Community Association — foreclosed on the home and sold it at auction in September 2012 to SFR Investments, a private company that owns 300 properties in the city. SFR bought the home for just $6,000, the amount of HOA dues that were owed by the defaulted homeowner.

Homeowners associations can place liens on properties within communities for unpaid fees. Unpaid association dues land in a super-priority that must be paid off first when a foreclosed home is sold. Homeowners can lose their house if they owe just a few hundred dollars in HOA dues.

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