As the Nevada Legislature wraps up this month, state lawmakers will be addressing several issues important to homeowners and the local housing market.
One of the most crucial, and perhaps most complex, deals with foreclosures by homeowner associations.
Groups representing HOAs are fighting any legislation that could threaten or eliminate the so-called super priority lien that allows HOAs to collect up to nine months of unpaid HOA assessments when a bank forecloses on a home in an HOA. Super priority liens also give HOAs the authority to foreclosure on delinquent homeowners and give associations first shot at collecting proceeds from the sale of a foreclosed home, ahead of the traditional first-lien position held by the mortgage lender.
This has been a contentious legal issue in recent years that has reached as far as the Nevada Supreme Court, pitting HOAs and companies that manage them against lenders and real estate investors.
The Nevada Association of REALTORS is working with state lawmakers to clarify these issues and balance the needs of homeowners, HOAs, lenders and others. Like state Sen. Scott Hammond, we support legislation that protects the interests of Nevada homeowners living in associations without wiping out the legal interests of federal entities that help homeowners secure mortgage loans.
This issue is being watched very closely by the Federal Housing Finance Agency, which regulates Fannie Mae, Freddie Mac and the 12 federal home loan banks. These government-sponsored enterprises provide more than $5.6 trillion in funding for the U.S. mortgage markets and financial institutions.
By some estimates, FHFA plays a key role in backing as many as 70 percent of all mortgages in the U.S. and here in Nevada.
Here’s what the FHFA had to say in a prepared statement issued last month reminding Nevada lawmakers why they should not pass any laws that could allow HOAs in Nevada to extinguish liens these government-backed entities place on homes facing foreclosure:
“(Federal) law precludes involuntary extinguishment of Fannie Mae or Freddie Mac liens while they are operating in conservatorships and preempts any state law that purports to allow holders of homeownership association (HOA) liens to extinguish a Fannie Mae or Freddie Mac lien, security interest, or other property interest.
“As noted in our December 22, 2014 statement on certain super priority liens, FHFA has an obligation to protect Fannie Mae’s and Freddie Mac’s rights, and will aggressively do so by bringing or supporting actions to contest HOA foreclosures that purport to extinguish enterprise property interests in a manner that contravenes federal law. Consequently, FHFA confirms that it has not consented, and will not consent in the future, to the foreclosure or other extinguishment of any Fannie Mae or Freddie Mac lien or other property interest in connection with HOA foreclosures of super priority liens.”
These are pretty strong words from a federal agency that has a huge impact on our housing market.
If lawmakers don’t heed these warnings, FHFA officials have suggested that lenders could seriously curtail or even stop making mortgage loans in Nevada.
David Stevens, president and CEO of the national Mortgage Bankers Association, has also warned states with super priority liens that can wipe out the interests of lenders and investors that their homebuyers could face higher loan fees, interest rates and down payments.
This would be disastrous, especially since our state’s housing market is just now recovering from the Great Recession and since stringent lending standards are still making it difficult for many would-be homeowners to obtain a mortgage.
I can tell you that our more than 14,000 REALTORS throughout Nevada take such warnings very seriously. And we encourage legislators to do the same.
Kevin Sigstad, a longtime REALTOR based in Reno, is the 2015 president of the Nevada Association of REALTORS (NVAR), a professional trade association with more than 14,000 members. NVAR is committed to protecting, promoting and preserving our communities. Visit www.NVAR.org.