Outcome of lender and HOA foreclosure dispute could affect rates

MBA says if this recent court decision in Nevada stands, lenders will have to raise mortgage rates to compensate.

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.