Outcome of lender and HOA foreclosure dispute could affect rates

by Rachel.Norvell15 Oct 2014
Last month the Nevada Supreme Court decided that a homeowners association can foreclose on homes to recoup delinquent payments, a decision that could potentially cause mortgage rates to rise.

The issue is HOAs and the liens they put on properties when a homeowner stops paying dues. The association enforces rules in a community and collect dues to maintain common areas and pay for repairs, according to the Wall Street Journal. Nevada, along with 20 other states, has laws that allow HOA liens to get priority over first mortgages.

David Stevens, president of the Mortgage Broker Association, said that if the decision stands, lenders will have to account for it by raising mortgage rates in Nevada, according to the Wall Street Journal.

Bank of America, which was involved in last month’s Nevada Supreme Court case, has 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 filed Tuesday, 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.



 

COMMENTS

  • by Glen Weinberg: Fairview Lending | 10/15/2014 9:48:09 AM

    Very interesting. Being a lender myself this could be problematic since most lenders only escrow for taxes and insurance not HOA dues. For an HOA lien to trump a mortgage will make lenders hesitate on lending in certain areas or complexes. Definitely will be interesting to see how this unfolds, doubt this court case is the last word

  • by Bill S. | 10/15/2014 10:08:48 AM

    Fannie already charges an additional LLPA of 0.75 points on a condo with less than 25% down. I hate financing condos as DU almost always asks for a lender review. The gathering of docs is very time consuming and frustrating. What good is a first lien mortgage if a HOA can supercede it?

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