By Deborah Goonan, Independent American Communities
Real estate auction investors who purchased hundreds of properties at HOA foreclosure sales for pennies on the dollar are reeling at this latest Supreme Court ruling in Nevada.
In 2014, Nevada Supreme Court ruled that an investor who purchases an HOA foreclosure can wipe out the first mortgage by paying the HOA super priority lien in full. According to a ruling made in 2014 (SFR Investments Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408 (Nev. Sep. 18, 2014)), an investor was able to satisfy an $11,000 HOA lien, thereby eliminating the lender’s outstanding mortgage of $271,000.
Talk about a field day for real estate investors. The 2014 SFR ruling created plenty of potential for windfall profits on HOA and Condominium Association foreclosures, as well as perverse incentives for Associations to rush to courthouse steps and auction off properties with delinquent accounts, before the lender could get around to doing its foreclosure.
But last month’s Supreme Court Ruling (Nationstar Mortgage, LLC v. SFR Investments Pool 1, LLC (Case No. 69400)) just eliminated the majority of that windfall. The Court agreed with National Mortgage that loan servicers for GSEs Fannie Mae and Freddie Mac may prevent HOAs from foreclosing on homes without the consent of conservator FHFA. Expert sources estimate that 60-65% of mortgages are backed by either Fannie or Freddie.
Will this latest ruling invalidate hundreds, if not thousands, of foreclosures that should have never been allowed to occur? How will lenders and GSE mortgage services respond? Will they sue Associations for wrongful foreclosure?
Expect sinificant disruption in Nevada’s real estate foreclosures market, not to mention even more negative publicity for the homeowner and condominium association industry.
No doubt that Legislators will feel pressure from lobby groups on both sides of the issue.
The Nevada ruling has no immediate effect on HOA super-priority lien court decisions rendered in Washington State, Rhode Island, and District of Columbia, where similar court battles are taking place.
Nevada HOA Super-Priority Litigation Update: Nevada Supreme Court Rules in Favor of Lenders on Standing Issue
July 10, 2017
The Government-Sponsored Enterprises (GSEs) and their servicers scored a significant victory last week in the Nevada Supreme Court. In Nationstar Mortgage, LLC v. SFR Investments Pool 1, LLC (Case No. 69400), the court held that mortgage servicers have standing to assert, on behalf of the GSE investor, that the Housing and Economic Recovery Act (HERA) preempts state law and prevents extinguishment of the GSE loan at an HOA foreclosure sale.
Since the Nevada Supreme Court’s decision in September 2014 that foreclosure of an HOA lien could extinguish a deed of trust, investors and servicers, on the one hand, and HOA foreclosure sale purchasers, on the other hand, have been litigating whether deeds of trust survive an HOA foreclosure sale under NRS 116.3116. One major defense for investors and servicers has been that HERA prevents extinguishment of a deed of trust at an HOA foreclosure sale when a GSE, such as Fannie Mae or Freddie Mac, owned the loan at the time of the HOA foreclosure sale.
Nevada high court ruling involves foreclosed Henderson home
By Sean Whaley Las Vegas Review-Journal
June 22, 2017 – 11:05 am
Updated June 22, 2017 – 7:59 pm
CARSON CITY — The Nevada Supreme Court weighed in Thursday with another ruling related to the long-running HOA super-priority lien issue, finding that loans being serviced by financial firms that are backed by Freddie Mac and Fannie Mae can be protected from foreclosure.
The case involved an appeal by Nationstar Mortgage from a Clark County District Court ruling in favor of SFR Investments Pool.
The question for the court was whether an existing federal bar on foreclosures involving Freddie Mac properties dating to the Great Recession prohibited the acquisition of a foreclosed home in Henderson by SFR Investments Pool. The property was acquired for $11,000 in 2013. The original loan was $271,000.
The court said that financial institutions like Nationstar that act as servicers of such federally backed loans do have standing in Nevada to assert the Federal Foreclosure Bar in such actions.
But the court also said that in the instant case, District Judge Michael Villani did not determine if the loan in question was owned by Freddie Mac. The court sent the case back to district court for further proceedings.
For further background and analysis on HOA priority liens, see the following previous article:
Is the HOA priority lien necessary and beneficial?
Posted on June 9, 2016 by deborahgoonan