By Deborah Goonan, Independent American Communities
The HOA industry got another black eye this week with the release of Nevada Association of Realtors (NVAR) report on the adverse effects of HOA foreclosures on property values.
NVAR teamed up with SGS, a professional survey company, to measure consumer opinions of HOAs and the controversial priority lien. On behalf of NVAR, University of Nevada at Las Vegas (UNLV) – specifically the Lied Institute for Real Estate Studies – conducted data collection and analysis of HOA foreclosures in Clark and Washoe Counties over a 42-month period between 2013 – 2016.
Key results are summarized in the two news releases that follow:
HOA foreclosures tied to more than $1B in lost Reno, Vegas home values
Jason Hidalgo , firstname.lastname@example.org Published 1:59 p.m. PT July 5, 2017 | Updated 6:31 a.m. PT July 6, 2017
Foreclosures by homeowner associations in Nevada’s two major counties led to more than $1 billion in lost property sale values, a report found.
The Nevada Association of Realtors report looked at the impact of sales involving properties that were foreclosed after residents failed to pay their HOA fees. The study was done by the University of Nevada, Las Vegas’ Lied Institute for Real Estate Studies.
Homeowners association foreclosures are a controversial topic in Nevada, where HOA assessment liens are given higher priority over the rights of the first mortgage holder such as the lender.
Geoff Giles, a Reno real estate attorney, says he is surprised that the lost value in the Nevada Association of Realtors report was not higher.
NVAR Report Shows HOA Foreclosures Reduced Nevada Property Values by over $1 Billion
July 5, 2017 By Press Release Wire
A report from the Nevada Association of REALTORS (NVAR) found that foreclosures by local homeowner associations have reduced property values in the state’s two most populated counties by more than $1 billion.
This was just one of the findings in a report released this week by NVAR about issues surrounding foreclosures by homeowner associations and so-called super priority lien laws that allow HOAs to foreclose on homes in a way that places a higher priority on repaying late HOA fees than repaying the mortgage when these homes are sold following a foreclosure.
As part of its report, NVAR worked with the Lied Institute for Real Estate Studies at UNLV and with a research firm called SGS that surveyed more than 500 registered voters throughout Nevada to measure their views on HOAs, super priority liens and related issues. The report concluded that “HOA foreclosures in Nevada cause an enormous impact on home values.”
NVAR’s report found that 77 percent of all Nevadans surveyed oppose HOAs having the power to foreclose on homes over unpaid association dues. In addition, 82 percent of all respondents think that the mortgage lender should be paid first, not the HOA.
According to the survey, 44 percent of all Nevadans had an unfavorable view of HOAs, compared to 29 percent who had a favorable opinion.
After reading and reviewing the entire report (see below), here are some more important nuggets of information:
HOA foreclosure buyers realized significant discount rates: 42% in Clark County and 90% in Washoe County
HOA foreclosure activities were concentrated in some communities, and particularly prevalent in associations managed by a few prominent management companies, as documented in the report.
HOAs with the highest number of HOA foreclosures and their management companies are listed below. Eight of the HOAs use common management companies. These management companies are FirstService Residential, Nevada LLC, Complete Association Management Company LLC, and Western Nevada Management, Inc. (Page 20)
Of the over 2,252 associations in LIED’s database, only 287 had at least one HOA foreclosure. About one-sixth of all foreclosures are accounted for by 10 of the 287 associations. One HOA pursued 20 foreclosures and another had 18. Roughly one-sixth of all foreclosures are accounted for by 10 of the 287 associations. (Page 21)
Eleven HOA investors are listed as “most active” in foreclosure purchases. (Page 21) Those investment corporations are inundating Nevada courts with litigation, both as Plaintiffs and Defendants.
Several of Nevada’s leading Association Management Companies also happen to own a subsidiary HOA Collection company. And, according to the report (page 30):
According to the Nevada Real Estate Division, there are 466,356 HOA units in Nevada. Between FirstService Residential and Terra West Management, 136,846 out of 466,356 (or almost 30%) of all HOA units have some direct connection with an HOA Collection Agency.
An SGS survey conducted in March 2017, found that 80% of respondents would support a law prohibiting HOA management companies from also owning and operating their own HOA collection agencies.
Notable November 2016 Survey statistics:
49% surveyed have a negative opinion of management companies
53% have a negative opinion of debt collection companies
58% think that HOAs care mostly about collecting dues, while only 21% think HOAs provide a good value for the money
58% of respondents pay HOA dues, 41% do not
Notable March 2017 statistics:
45% surveyed have a negative opinion of management companies
53% have a negative opinion of debt collection companies
59% think that HOAs care mostly about collecting dues, while only 21% think HOAs provide a good value for the money
80% agree that “the Nevada legislature should pass a law prohibiting HOA management companies from also owning and operating their own HOA collection agencies.”
46% of respondents pay HOA dues, 53% do not
Both surveys clearly indicate that when consumers are educated about the realities of HOA foreclosures and priority liens, they overwhelmingly oppose the power of HOAs to foreclose over unpaid association dues: 84% and 88%, according to the 2016 and 2017 surveys, respectively.
What can we learn from NVAR’s report on Nevada’s Homeowners’ Association Super Priority Lien?
The NVAR study and report provides a strong argument for abolishing the priority lien for HOAs, and perhaps even abolishing the right of HOAs to foreclose altogether.
But while the research provides strong evidence that HOA foreclosures reduce property values more than “ordinary” foreclosures, the scope of the research does not look at many other factors that are also likely to have an adverse effect on property values.
For example, the study does not address the power of HOAs to impose fines or other financial penalties due to alleged violation of covenants, restrictions, rules and regulations. Nor does the study examine the relationship between monetary fines and assessment delinquencies.
It would be most enlightening to collect and analyze data to determine if there are any correlations between the amount and type of mortgage (FHA, VA, conventional, jumbo, fixed rate, variable rate, etc.), mortgage default rates, and HOA assessment default rates.
It would also be fascinating to collect demographic infomration about the owners of properties that face HOA foreclosure, to see if any particular protected class is disproportionately affected. I would think HUD would be most interested in this data.
Similar and expanded studies should be conducted in other states, both with HOA priority lien and without, and with or without judicial foreclosure.
In my opinion, chances are very high that the data will reveal similar patterns of corruption and negative public opinion, regardless of priority lien or judicial foreclosure statutes.
But one thing is clear. Homeowners and board members of association-governed communities need to read this report and take heed. Property values and HOAs face more harm than benefit from HOA aggressive assessment collection and foreclosure policies.
Read the full NVAR Report: