Nevada homeowner associations and their collection agencies have scored a tactical victory in one of the many lawsuits pending over what critics call inflated assessments and collection costs that buyers of foreclosed homes are expected to pay.
Bank of America subsidiary BAC Home Loans Servicing LP on Jan. 31 sued scores of Nevada HOAs, their trustees and collection agencies, charging that in order to gain clear title on foreclosed homes it re-sells, the bank has been forced to pay fees and collection costs it is not obligated to pay.
The HOAs and the collection agencies responded that their assessments and costs are fair and authorized by state law — a contention that may ultimately be decided by the Nevada Supreme Court.
U.S. District Judge James Mahan last week dismissed the BAC lawsuit, but not on the merits.
Rather, he wrote in his order, the bank was required under state law to assert its grievance through arbitration or mediation before filing suit. The grievance was supposed to be filed with the Real Estate Division of the state Department of Business and Industry.
Mahan dismissed the lawsuit without prejudice, meaning the bank may be able to file it again should it be dissatisfied with the results of arbitration or mediation.
"As the complaint here arises from the defendants increasing the amount of the assessments due to attorney’s fees and the costs in collecting the fees, the plaintiff was required to submit the claim to arbitration or mediation first," Mahan wrote in his order.
During the recession, defaults have risen sharply on homeowner obligations to Nevada HOAs for monthly assessments and fines.
At the same time, HOAs have seen their budgets threatened by the glut of foreclosed homes. In many cases, there’s no one HOAs can turn to for payment of assessments and fines for these properties until they’re foreclosed on and re-sold.
Investors who buy foreclosed homes, however, counter they’ve been gouged at closing by the HOAs and collection agencies – which file liens against the properties that must be cleared at closing.
And in another headache for the collection agencies, several lawsuits filed by homeowners are pending alleging unfair debt collection practices.