A recent law aimed at reining in the power of HOAs has thrown a potential curve ball into real estate investing in the state of Nevada. Senate Bill 306, which Governor Brian Sandoval signed into law on May 28, 2015, allows homeowners and first lien holders the right of redemption within 60 days of an HOA foreclosure sale.

Read on to find out how this law may affect your real estate investment portfolio.

Putting Senate Bill 306 into Context

Senate Bill 306 is a reaction to the 2014 Nevada Supreme Court decision, SFR Investments Pool 1, LLC v. U.S. Bank, which ruled that homeowners associations could attach super-priority lien status to a home mortgage. In the event that a homeowner became delinquent on their dues, in other words, the HOA could extinguish a first deed of trust without going to court. Thus, homeowners could wind up in foreclosure without ever missing a mortgage payment, and lenders stood to lose an investment worth many times the amount of the delinquency itself.

In addition to giving lenders and homeowners a 60 day right to redemption following an HOA foreclosure sale, SB 306 forces HOAs to be more transparent about the foreclosure process.

They must notify lien holders as to the precise 9-month super-priority amount owed to satisfy that portion of the lien.
The notification must take the form of a certified letter.
They must specify where the HOA sale is to take place.
These regulations come after news that the Housing and Economic Recovery Act preempts Nevada state law regarding super-priority liens. According to U.S. District Court Judge Gloria Navarro, Loans backed by Fannie Mae and Freddie Mac take precedence over HOA delinquencies and cannot be shifted into a secondary position.

Understanding the Potential Impact of SB 306

Although Senate Bill 306 gives individuals the right to redeem their HOA property within 60 days of a judicial foreclosure, many homeowners who are delinquent on their loan may lack the means to exercise this option. Moreover, the servicer is under no obligation to expedite the redemption process; if homeowners aren’t careful, they could easily miss the deadline.

The true impact of the bill is that it will probably decrease the number of HOA foreclosure sales at a time when foreclosures, both nationwide and in Nevada, continue to decline. Senate Bill 306 could therefore limit what was once a lucrative avenue for real estate investors.

Peak Foreclosure Services, Inc. specializes in a wide range of default servicing solutions to support and meet the needs of banks, private investors, servicers, and sub-servicers. The company offers both judicial and non-judicial in-house foreclosure services, reconveyance, post foreclosure services, and loss mitigation in eleven states –- Arizona, California, Idaho, Montana, Nevada, North Carolina, Texas, and Washington. They also offer national foreclosure referral services through carefully selected counsel and handle everything from payment processing to foreclosure and bankruptcy processing, REO repair, and disposition services. They are a true one-stop solution for all their clients’ foreclosure servicing needs.