Nevada Supreme Court ruling could jeopardize first mortgage liens

Holds HOAs can foreclose ahead of first mortgage providers

Matt Martin Real Estate Management is sounding the alarm that a recent decision by the Nevada Supreme Court could substantially impact the security of first mortgage lien holders.

The court upheld a law that allows homeowner's associations to foreclose on homes ahead of first mortgage providers, solidifying “super lien” priority for HOA claims in Nevada.

The decision is expected to reinforce similar laws in other states that have super lien laws designed to protect HOAs at the expense of first lien holders.  In its decision on SFR Investments Pool 1, LLC, v. U.S. Bank on Sept. 18, the court ruled that an HOA super-priority lien is a “true super-priority lien,” and that a properly conducted foreclosure on the HOA lien extinguishes first deeds of trust. 

The case in question involved a $6,000 lien that was foreclosed upon by SFR Investments, wiping out an $880,000 first lien held by U.S. Bank.

“This is a tremendous wakeup call for the industry,” says Matt Martin, chairman of MMREM and CEO of its HOA unit, MMREM HOA Risk Mitigation, formerly known as Sperlonga.  “We have been saying for years that super lien states pose a great risk to lenders, servicers and investors in many parts of the country. The important thing to know is that these issues are avoidable when lenders understand the dangers and the solutions available.”

Many lenders are unaware that liens are in place – or even that HOAs are involved – with properties under their ownership.  The company provides tracking and surveillance services that alert lenders when HOA fees are unpaid, and finds liens that can threaten first mortgage position before danger arises.

About 20 states have super lien laws, and Martin says that number is growing in states’ efforts to protect homeowners and their HOAs.

“Lenders, investors and their servicers need to know about their HOA obligations and understand that delinquencies can lead to devastating losses, even when they involve amounts as low as $6,000,” says Martin.  “It is vital that they realize they have resources available to mitigate these problems, using proactive methods and technology for pre-foreclosure notification and ongoing surveillance.”  He adds, “MMREM HOA Risk Mitigation has saved clients over $12 million in fees associated with delinquent HOA dues.”

Martin further notes that the estimated 350,000 HOAs in the United States cover over 25 million households, represent every type of owned residential real estate, and involve 80% of new construction.

“This is an issue that will only become larger over time,” Martin says.

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