The Nevada Supreme Court waded Wednesday into the first of what may be multiple cases pitting homeowner associations and their collection agencies against buyers of foreclosed homes.
At issue is how much money buyers can be required to pay to clear HOA liens for dues, fees, fines and collection costs that accumulate against the homes while they sit vacant during the foreclosure process.
During oral arguments before a Supreme Court panel in Las Vegas, an attorney for the state asked the court to find HOA collection agencies and their fees are subject to regulation by the Nevada Financial Institutions Division (FID).
That would represent a victory for buyers of foreclosed homes — typically investors.
That’s because the FID has already ruled that under state law, HOAs can file liens against foreclosed homes for just the equivalent of nine months of HOA dues.
That would amount to just $450 if HOA dues are $50 per month — a sum HOAs and the collection agencies say is woefully inadequate.
The HOAs, dealing with a glut of foreclosed homes during the recession, often spend thousands of dollars on maintenance and repairs for vacant homes and sometimes end up foreclosing on them to recover their costs.
“The publication costs alone are about $500 to conduct a foreclosure,” Patrick Reilly, a Las Vegas attorney with the firm Holland & Hart LLP and representing three collection agencies, told the court Wednesday.
The collection agencies say HOA fees can only be regulated by another state agency, the Nevada Real Estate Division.
The state Commission for Common-Interest Communities and Condominium Hotels, which is part of the Real Estate Division, has been friendlier than the FID to HOAs.
Last year the commission allowed liens for collection costs of up to $1,950.
This appears to have left the Supreme Court in the position of having to decide conflicting rulings from two state agencies that, ironically, are both part of the larger Nevada Department of Business & Industry.
Justices on Wednesday asked what the Legislature intended when it comes to regulating collection agencies and HOA activities.
“Where’s the authority?” Justice Michael Douglas asked.
“The authority is that collection agency activities are regulated solely by the Financial Institutions Division,” said Deputy Attorney General Daniel Ebihara.
The justices didn’t indicate when they would rule in the case, which is an appeal from a 2010 ruling by Clark County District Judge Susan Johnson that sided with the collection agencies. She found the FID lacked authority in state law to regulate HOA collection fees.
With this case focusing on which agency can regulate HOA collection agencies, fees and liens, a bigger battle may be heading to the court in the next few years over the size of those fees and liens.
Investors in foreclosed homes last year received two favorable court rulings in Las Vegas finding these fees are capped to nine months of assessments as the FID had earlier ruled.
The investors are also pursuing class-action lawsuits over the same issue against big homeowner associations for the Aliante, Southern Highlands and Mountain’s Edge planned communities.
Attorneys agreed Wednesday that at some point one or more of the rulings on the amount of the HOA liens will likely be appealed to the Supreme Court — though it’s also possible the Legislature will weigh in with new limits benefiting one side or the other.
This is a problem that has exploded in Nevada during the recession.
On the one hand, cash-strapped HOAs say they need to recover expenses for pulling weeds from yards and keeping algae out of the pools of vacant, foreclosed homes. It’s usually a waste of time to go after the homeowner of record since the owner is unlikely to pay the HOA dues and fees if he or she can’t or won’t pay his mortgage.
On the other hand, buyers of the homes — typically investors — say the HOAs’ standard liens against foreclosed homes are excessive and they’re vowing to press for damages for what they claim are ongoing practices of overcharging buyers of these homes.