Foreclosures forcing debt on HOAs

By Jenny Davis

Friday, Oct. 31, 2008 | midnight

Nevada homeowners associations may square off against banks in the 2009 Legislature over fines and assessments that are piling up against foreclosed homes — and over the failure of homeowners and mortgage holders to maintain some of the vacant homes.

HOAs are frustrated because some of the foreclosed homes become eyesores with overgrown vegetation and have green, foul-smelling pools. They're upset because homeowners frequently fail to pay HOA assessments prior to abandoning the properties. And homeowners and mortgage holders often fail to pay assessments and fines during the foreclosure process that can drag on for nine months or longer.

Bankers, too, are frustrated. They're tired of being blamed for problems caused by homeowners who default on their loans and then abandon properties, leaving no one to take care of them or pay HOA assessments.

Bill Uffelman, chief executive officer of the Nevada Bankers Association, said that HOAs tend to forget that banks have no way of knowing when homeowners stop paying HOA assessments. It is not until after 90 days of nonpayment on the mortgage that banks have any right to file a notice of default. Nine months typically elapse from the day that the homeowner stops paying until the day that the bank owns the home again.

"During that time banks have no rights relative to the property," Uffelman said. "Nobody can even enter onto the property. Everyone says, "banks should do this or banks should do that,' but that's not what the law is."

Ken Hill, president of the Red Rock Country Club Homeowners Association, sees it differently. His Summerlin HOA, like others, must absorb more bad debt than it would like to because the law requires banks or lenders to pay no more than six months of retroactive assessment fees. And there is no law allowing retroactive fines for not maintaining landscaping or pools.

The HOA will have to raise its 2009 monthly assessment largely because of bad debts, Hill said. He declined to say how much the assessment would increase.

"Each homeowner is paying for somebody else's bad debt," Hill said.

For health reasons, the Red Rock Country Club HOA has paid to have pools maintained. The HOA then not only bills the property owner for the cost of maintenance, but also levies a fine for the owner's failure to drain the pool.

Fees and fines continue to pile up, but in many cases the HOA has no hope of collecting what it's owed.

"What I want to see is that if a bank forecloses and becomes the owner, that they are required to take care of any outstanding debt (or liens) on the house. That is what is required for any other property owner. It should be the same for banks," Hill said.

State Sen. Bob Beers, R-Summerlin said lenders should have to pay more than six months of assessments.

"An owner is an owner is an owner," he said. "It doesn't matter to me if the bank or lender is the owner, you have an obligation to participate in fees for HOAs as you contracted to do."

Beers said that banks should add the retroactive assessment fees liens from HOAs on the home into part of the price for new buyers.

State Sen. Mike Schneider, D-Spring Valley, has introduced a bill that would require lenders of foreclosed homes to maintain property including landscaping and pools, which would require the water and power to be kept on.

"Banks a lot of the time are their own worst enemies," he said. "There are a lot of deep discounts on foreclosed homes because the landscaping is shot and there is no appeal to people to buy the homes, but banks are discounting $300,000 homes to $150,000 when they don't need to if they would maintain the property. "

Schneider said he's also pushing the bill because of health hazards that come from non-maintained pools and because values of homes in the community go down because of neglect.

"It affects our tax base," he said. "Property taxes go down and we lose funding for schools."

Hill doubts legislators will seriously crack down on banks, considering many are struggling with bad real estate loans, some have failed and some are being bailed out by the federal government. He also fears that if banks must pay more past-due assessments, the foreclosure process will drag on even longer.

"I prefer that we try to compromise with banks," Hill said. "Instead of requiring them to pay 18 to 24 months in back assessments, have them pay for at least a year."

Jenny Davis can be reached at 990-8921 or [email protected].