Nevada HOA debt collection lawsuit will proceed

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VEGAS INC coverage (business):

A big collection agency for Nevada homeowner associations suffered a legal setback today when a federal judge refused to dismiss a lawsuit accusing it of abusive debt collection practices.

In denying a motion for dismissal of the lawsuit against Nevada Association Services, U.S. District Judge James Mahan said he wanted the case to proceed so he could see more information about how the company operates.

In one of the many lawsuits pitting homeowners and investors in foreclosed homes against Nevada HOAs and HOA collection agencies, attorneys for two homeowners filed suit in December against NAS and its president, David Stone, alleging violations of the federal Fair Debt Collection Practices Act and other counts.

Attorneys for the homeowners say NAS — in collecting past-due assessments and fines — has been coercing homeowners into paying inflated collection fees with phony legal documents and false threats to foreclose on their homes.

The suit says NAS demanded collection fees and costs that were never authorized by homeowner associations, never incurred by HOAs and never agreed to by homeowners in community covenants, conditions and restrictions (CC&Rs); “and thus did not constitute a ‘debt’ owed to the” HOAs.

Attorneys for NAS with the Las Vegas office of the law firm Holland & Hart LLP asked Mahan to dismiss the suit, saying NAS complies with debt collection rules imposed on HOAs by the Nevada Commission for Common-Interest Communities and Condominium Hotels.

NAS lawyers complained that the Las Vegas attorneys representing the homeowners in the case — including attorneys James Adams and Puoy Premsrirut — filed the suit “in an ongoing scheme of forum, plaintiff and claim shopping with no purpose other than to harass defendants NAS and Mr. Stone.”

Premsrirut has become such a thorn in the side of HOAs and their collection agencies that NAS and two other collection agencies sued her and her brother, fellow foreclosed home investor Rutt Premsrirut, in March in state court.

That suit charged they were abusing the legal system by repeatedly challenging what they call inflated HOA assessments and collection costs that homeowners and investors in foreclosed homes must pay.

A state judge threw out that lawsuit last month, finding it was the collection agencies that were trying to use the court system to violate the free speech rights of the Premsriruts.

In the federal case, Adams added that NAS regularly — and falsely — threatens to foreclose on the homes of homeowners it’s trying to collect money from as an intimidation tactic and as a way to collect $400 in fees for each foreclosure threat.

“It’s a lie,” he said, explaining it makes no sense for HOAs to foreclose on underwater homes as all HOAs would receive is homes encumbered by mortgages. And when the mortgage holder forecloses, the HOAs would receive nothing.

Premsrirut told the judge that NAS, which earns its revenue not from HOAs but from collection fees paid by homeowners, has inflated these fees to the point where they have no relation to its actual collection costs.

“You have a debtor and a creditor. The creditor assigns the account to a collection agency. The collection agency works the contract on behalf of the creditor,” Premsrirut said. “That collection agency cannot grow the debt. That collection agency cannot independently grow a $50 debt to $3,000. And that is what is happening here.’’

A real life example, she said, is someone owing $100 to $200 in assessments ending up paying more than $2,000 once collection costs are included.

The lawsuit alleges homeowners, in buying homes in common interest communities, didn’t agree to pay such costs as such costs are not spelled out in HOA community covenants, conditions and restrictions.

With this alleged scheme, “for years defendants have unlawfully pilfered millions of dollars in bogus collection fees from thousands and thousands of unsuspecting and financially struggling Nevada homeowners,” the homeowners charged in a court filing.

Mahan said the facts of the case need to be sorted out, making it inappropriate for him to dismiss at this time.

NAS and other collection agencies, which are mired in numerous similar lawsuits, say they’re performing a needed service as the recession has harmed HOA budgets with so many homeowners not paying assessments and no one paying assessments on vacant homes as they wait to be foreclosed on.

As Stone has put it: “If he (Adams) had his way, all the HOAs would be bankrupt and unable to pay their bills.”

NAS did score one victory today when Mahan indicated he’ll likely deny a motion to have the lawsuit certified as a class action.

That’s because each potential class-action plaintiff would bring to the suit his or her own set of facts and there wouldn’t be enough in common for them all to participate in the same suit, the judge said.

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