Federal district court bars foreclosure sale of first lien HUD-insured mortgages

by MPA02 Dec 2014

Recently, the U.S. District Court for the District of Nevada held that a homeowners association (HOA) foreclosure sale is not valid against HUD-insured loans, but will the ruling be extended to GSE-insured mortgages?


The decision comes shortly after the Nevada Supreme Court upheld a state law that gives HOAs a super-priority lien on a Nevada property for up to nine months of unpaid HOA dues.


In its ruling, the District Court noted that federal rather than state law applies in cases involving FHA-insured mortgages to assure the protection of the federal program against loss, state law notwithstanding.


The District Court reasoned that in situations where a mortgage is insured by a federal agency under the Federal Housing Administration (FHA) insurance program, state laws cannot operate to undermine the federal agency’s ability to obtain title after foreclosure and resell the property.


The Mortgage Bankers Association (MBA) said Monday it plans to reach out to the Federal Housing Finance Agency (FHFA) to determine whether its counsel believes the U.S. District Court’s HUD/FHA ruling may be extended to Nevada loans insured by the GSEs, due to their FHFA conservatorship.


In September, the Nevada Supreme Court ruled that a homeowners association can foreclose on homes to recoup delinquent payments, a decision that could potentially cause mortgage rates to rise. Nevada, along with 20 other states, has laws that allow HOA liens to get priority over first mortgages.


Bank of America, which was involved in the Nevada Supreme Court case, requested the Supreme Court reconsiders. The lender argued that, because the “superlien” law gives an HOA lien priority over a first mortgage to the extent of nine months of unpaid dues, only nine months of unpaid dues should have priority over a first mortgage, not the entire assessment lien.


According to court documents, the MBA wrote that the decision could cause mortgage lenders “to lose millions—perhaps even billions—of dollars in security interests.” The mortgage industry argues that HOAs shouldn’t have this power and they should have to foreclose through the court system.


  • by Glen Weinberg: www.fairviewlending.com | 12/2/2014 9:56:43 AM

    Very interesting ruling, this will definitely be precedent setting in multiple states giving HOAs less leverage on recouping unpaid dues.

  • by Wm Matz | 12/2/2014 4:58:26 PM

    Actually, the effect is limited to states that give HOA fees a superpriority. Not sure how many do that, but it seems rare. CA does not.

  • by PRO HOA | 12/4/2014 10:07:47 AM

    The agencies who insured these properties need to realize that the lender, be it a bank or a government agency, DID NOT PROTECT THEIR INTEREST by failing to pay delinquent HOA dues. Why should the HOA suffer financial loss because the owner of the property, the lender, didn't pay dues?
    It's like the lender left their car running with the doors open and then were surprised when the car disappeared. The lenders were clearly asleep as to the existing laws regarding the HOA super priority lien. The Nevada Supreme Court unanimously upheld the law allowing for no further discussion. Ignorance of the law is no excuse.
    Re: the paranoia about mortgage rates skyrocketing and lending practices being negatively impacted because of this ruling is total crap. All the lender has to do is escrow HOA payments just as they do on property taxes and insurance. Problem solved.
    The lenders blew it and don't want to pay for their mistake.


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