Mortgage Lenders VS Home Owner Associations in Las Vegas
A recent court ruling in Las Vegas, Nevada has sparked a debate between mortgage lenders and Home Owner Associations. Last month, the Nevada Supreme Court ruled that HOA’s priority super liens supersede a mortgage lender’s first position mortgage in a foreclosure action – a decision that many lenders are urging the court to reverse.
This means that if a mortgage lender has a seller-financed mortgage note on a property in Las Vegas and the borrower of that mortgage goes delinquent on the HOA fees, then the HOA can step in and supersede the first position lien (which spells big trouble for the first position lien holder). The HOA can legally foreclose on a home and auction off the title of the property without involving the lender or the court system. HOA can auction that home off for pennies on the dollars, which will completely wipe away the loan owed on the mortgage note.
According to The Wall Street Journal, this could have a huge effect on the nation’s already-restricted home loan market. Many lenders are arguing that HOA’s ability to extinguish first mortgages is not in the best interest of homeowners or lenders. They argue HOAs should not be able to foreclose on a residential property or extinguish mortgages without going through the court system. The Mortgage Bankers Association claims mortgage lenders will lose millions of dollars in security interests due to this new law. Many lenders fear the new law could influence other states to pass similar laws, which would be disastrous for the mortgage industry. Nevada and about 20 other states already have laws in place that grant HOA liens priority over first mortgages.
It is of the utmost importance that mortgage holders in Las Vegas are aware of this new law. They must be cautious and monitor the borrowers’ ability to keep the HOA fees current. If they get a sense of default on the HOA fees, the lender should take one of two steps:
1. Pay off the fees and roll the balance into the existing mortgage or begin the FC process.
2. Or, simply sell the note to one of the reputable mortgage note buyers out there.
With the ladder option, mortgage lenders will be able to get their money and get out. They can avoid the chance of not making a return on your investment and let the mortgage note buyer worry about that risk.