The Nevada Supreme Court recently upheld a law that allows homeowners associations (HOAs) to foreclose on homes ahead of first-mortgage providers – therefore, solidifying super-lien priority for HOA claims in the state, explains Matt Martin Real Estate Management LLC (MMREM).
In its decision on SFR Investments Pool 1 LLC, v. U.S. Bank N.A., on Sept. 18, the court ruled that an HOA super-priority lien is a "true super-priority lien" and that a properly conducted foreclosure on the HOA lien extinguishes first deeds of trust. The case in question involved a $6,000 lien that was foreclosed upon by SFR Investments, wiping out an $880,000 first lien held by U.S. Bank.
MMREM, a diversified national real estate services firm based in Texas, warns lenders and servicers that this decision could substantially impact the security of their first mortgage liens. The firm says the decision may also affect other states that have super-lien laws designed to protect HOAs at the expense of first-lien holders.Â
"This is a tremendous wakeup call for the industry," says Matt Martin, chairman of MMREM and CEO of its HOA unit, MMREM HOA Risk Mitigation, formerly known as Sperlonga.Â "We have been saying for years that super-lien states pose a great risk to lenders, servicers and investors in many parts of the country. The important thing to know is that these issues are avoidable when lenders understand the dangers and the solutions available."
According to MMREM HOA Risk Mitigation, many lenders are unaware that liens are in place – or even that HOAs are involved – with properties under their ownership.Â The company provides tracking and surveillance services that alert lenders when HOA fees are unpaid and finds liens that can threaten first-mortgage position before danger arises. Approximately 20 states have super lien laws, and Martin says that number is growing in states' efforts to protect homeowners and their HOAs.
He further notes that the estimated 350,000 HOAs in the U.S. cover over 25 million households, represent every type of owned residential real estate and involve 80% of new construction: "an issue that will only become larger over time," he warns.