The Nevada Supreme Court recently ruled in favor of a Home Owner's Association over U.S. Bank that will affect housing market here and is a game changer. After years of struggling with the banks, one homeowner's association foreclosed on U.S. bank for unpaid HOA dues and took possession of the property in a non-judicial foreclosure sale. The ruling extinguished the first, second and subsequent deeds of trust. This was challenged in District Court and U.S Bank prevailed. The HOA appealed the lower courts ruling to the Nevada Supreme Court who overturned the lower court. Unless the U.S. Supreme Court hears the case on appeal and overturns the State Supreme court that will be the end of it.
When the bank foreclosed on delinquent Owners and took possession of the property the HOA payments were not made current and HOAs suffered because the money to maintain the common areas was not enough because of the freeloading banks. Even though Uncle Sam stepped in and bailed out the banks and gave them $700 billion to help, they bought other banks and squandered the money. The home values plummeted and the banks decided to sit on the asset until the market improved and the HOAs could do nothing. In many cases the banks were simply servicing the loan and had no plans to pay the dues. The State legislature limited the amount of those liens to 9 month worth of dues and legislated it so it would survive the foreclosure in an effort to give relief the HOAs that were trying to supply all the services stated in the Covenants, Conditions and Restrictions (CC&Rs). The total of 9 months would be then charged to the whoever the bank sold the property to at auction. This was called a Super Priority lien.
The HOA is a quasi government entity that exist solely because of the dues it collects and when many of the dues payers can be 36 months in arrears and only 9 months of dues will get paid at some unknown date in the future something has to be done. The CC&Rs are recorded before any other deeds and in reality in position right behind taxes and always ahead of any deeds or trust. At least that is how the Nevada Supreme Court viewed it and now that is the law.
As you can imagine many of the banks are now scrambling to pay the delinquent dues and will keep them current. My opinion is that the banks will start liquidating the inventory of the homes they are holding.
No title company at present wants to insure the HOA deeds because more litigation is expected by the banks and maybe even the original owner will reappear and sue for being deprived of his property. Time will tell but the lawyers are suiting up. Buying a property at an HOA foreclosure sale can be risky. If you do, I would recommend hiring an attorney make motions to quiet the title.