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Nevada HOAs Challenged in False Claims Lawsuit

Blog Contributor Arbitration & Dispute Resolution, Business Challenges, ethics, GSEs, Political Action & Involvement, Short Sales & Foreclosures 4 Comments

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Tara Owen

By Tara Owen

Mention Home Owner Associations (HOAs) to any Las Vegas home owner and you are sure to get a passionate love them or hate them response. Many home owners I’ve met with are bitter over the fines imposed by HOAs for seemingly trivial violations.

The ongoing controversy of fraudulent practices, excessive assessments, and egregious collection costs of HOA fees on Las Vegas home owners has reached national attention as two local attorneys have filed a federal lawsuit against hundreds of Nevada HOAs and collection agencies.

Attorneys Puoy Premsrirut and James Adams filed the lawsuit under the False Claims Act against 500 Nevada HOAs in a federal court last year. The lawsuit, which can be read in full http://www2.8newsnow.com/docs/hoa_lawsuit.pdf, was unsealed in April to reveal allegations of conspiracy to fraud the United States government by overcharging Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac in excess of $15 million dollars in assessments and collection costs on REO properties.

Strategically getting the U.S. government involved in this recent lawsuit is a brilliant move by Premsrirut and Adams, which falls in a series of lawsuits filed over the years  fighting the alleged crime of exorbitant in the HOA collection fees being charged to Las Vegas home owners.

The attorneys insist that under Nevada law NRS 16.3116, in foreclosure situations, the assessments and costs that can be levied against delinquent properties “are limited to nine months immediately preceding institution of an action to enforce the lien unless federal regulations adopted by Fannie Mae or Freddie Mac require a shorter period of priority for the lien in which case the nine month period is reduced to a six month period.”  Fannie Mae and Freddie Mac have adopted such underwriting guidelines, which limits the HOA “super priority lien” — a lien superior to the first mortgage — to 6 months in the Federal Loan Mortgage Corporation Act 12 U.S.C 1455.

The HOAs listed in the lawsuit allegedly charged Fannie Mae and Freddie Mac every month the HOA dues went unpaid, along with additional late fees and collection costs for past due obligations.  The lawsuit challenges the collection costs charged to the GSEs, stating there is not a provision in the Nevada Revised Statutes to permit HOAs to authorize third party debt collectors to assess and charge the government owners, Fannie Mae and Freddie Mac.

“Collection agencies have been exceeding what the laws allows,” Adams told the Las Vegas Review Journal.

The HOAs and the collection industries dispute these arguments, saying an HOAs’ super priority lien against foreclosed homes includes not only the six or nine months of assessments, but also interest, late fees, and the costs of collecting against the lien.

“I can see the logic behind both sides, as HOAs need to remain solvent and the foreclosure crisis has hit many of them hard,” says Char Clark, the president of one Las Vegas HOA.

As a REALTOR® serving the Las Vegas community for over a decade, I have witnessed first-hand the hardship that inflated HOA collection costs imposes on our home owners struggling to find its way out of the foreclosure crisis. I have also experienced first-hand an HOA giving little regard to Nevada law by attempting to overcharge my seller for all incurred late fees and assessments by the former home owner on the HOA demand submitted to title. My familiarity with the legislation limiting HOAs to only collect on nine months allowed me to represent my client fully. I politely asked the HOA to submit a revised demand to title or I would report them to the Ombudsman’s office.  I was able to save my seller more than $20,000 dollars! It pays to know the news in your local market!

It is refreshing and inspiring to see these attorneys taking a stand on behalf of the home owners I help everyday. It is vital for REALTORS® to not only keep up with the changing legislation, but get actively involved in the legislative process, a subject that will be discussed in many more of my future blogs.

Tara Owen is the director of REO and default services with TO Vegas Homes, Majestic Properties, in Las Vegas. Connect with Tara at www.tovegashomes.com or www.facebook.com/TOVegasHomes.

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Comments 4

  1. Having worked from the bank side on foreclosed units, my group was tasked with getting all fnma/fhlmc HOA issues resolved for a top 3 servicer. Almost always, we would get completely taken advantage of from the collection companies specifically ALS, Red Rock Financial and two particular attorney firms. Often times the collection companies would charge $1,500 on a $300 debt and FNMA/FHLMC would be required to pay it in order to have clear title. This type of practice is also prevalent in Florida and California.

  2. Well written article! I am a real estate broker and educator in AZ who also does mediations for some Maricopa County Courts. Back in 1997 AZ went through major legislative HOA changes, and over the years, AZ has tried to annually tweak the HOA laws with some success. But, dealing with people who are generally ignorant of the legal processes and who may consider their “home” to be their kingdom, it takes a wake up call to make a point. The Feds will make a point, and it will be an expensive lesson. Best of luck

  3. Thanks for the explanation of this issue. I’ve been trying to get unambiguous information on this for my clients and this is the best I’ve read.

  4. As a realtor, obtaining FHA Certification is one of the most daunting processes. A few months ago, I was introduced to Association Online. They promptly assisted me in getting FHA approval for an HOA in Nevada. They gathered all the data and assembled the package. The team at AO made my FHA Certification process very simple! You should check them out http://www.associationonline.com or call (970-226-1324).

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