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March 28, 2015

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Judge halts state order on HOA collections from foreclosures

A District Court judge today issued a temporary restraining order to prevent a state agency from enforcing an order limiting how much homeowners associations can collect on delinquent foreclosures.

The order issued by Judge Susan Johnson is in effect until a hearing is held Tuesday on the preliminary injunction.

The injunction was prompted by a lawsuit filed this week by Nevada Association Services, RMI Management and Angius & Terry Collections in response to an order and advisory opinion handed down in November by George Burns, commissioner of the state Financial Institutions Division, which regulates collection companies.

That order, sought by investors who buy foreclosure homes at courthouse auctions, limited collection companies to collecting nine months of delinquent assessments. Traditionally, collection companies have tacked on their fees to the nine months of delinquent assessments, as allowed in state law, but the ruling said that can’t be done.

James Adams, the attorney representing investors who have battled HOAs and collection companies over the fees, said Johnson issued the temporary restraining order so the parties would have time to brief the issue. He said granting the order isn’t a reflection of the arguments.

A hearing will determine whether the restraining order will be extended so the matter can be more fully argued, Adams said.

With the November order, collection companies feared the Financial Institutions Division would revoke their license or penalize them in other ways if they didn’t comply.

The collection companies and their legal team are crying foul that investors are doing an end run around ongoing arbitration that resulted from earlier lawsuits filed by investors against collection companies and HOAs.

An arbitrator has sided with investors, but the ruling isn’t binding and the issue is likely headed back to District Court and ultimately the Nevada Supreme Court.

Collection companies claim that although Burns is commissioner of the Financial Institutions Division that regulates them, the issue of collection as it relates to foreclosures should be an issue only considered by the Nevada Real Estate Division.

The collection company practices prompted complaints from investors who claim they are overcharged, especially because fees can run thousands of dollars in some cases. Even members of the collection company industry say some firms have overcharged.

Nevada Association Services President David Stone said his group has been talking with state officials about withdrawing that opinion and order.

“We were blindsided by this,” Stone said. “I don’t think the commission did it intentionally to hurt anybody but they overstepped their bounds and didn’t realize the fallout from this. Our position is they don’t have jurisdiction.”

Adams said the Financial Institutions Division “absolutely has jurisdiction” because it licenses collection companies. Adams said his understanding is that even though it’s advisory, an agency decision is binding and if collection companies violate it, their license could be revoked.

“The recent complaint filed by Nevada debt collectors against Commissioner George Burns is both a cowardly and desperate attempt to redirect attention away from the debt collectors’ own despicable collection practices,” Adams said.

Collection companies maintain that if they had to take their fees out of the nine months of delinquent association dues, that would hurt HOA budgets already strapped by the rate of foreclosures in Las Vegas. They argue a previous decision in district court sides with HOAs and collection companies.

Investors argue state law limits the collections to nine months and the added fees are hurting their ability to invest and improve properties. Collection companies accuse investors of being greedy and only wanting to enhance their profits.

“I don’t think the general public understands that if you live in a homeowners association and follow the rules, you should be concerned about this,” Stone said. “It will hurt you if investors have their way.”

Adams said the lawsuit uses innuendos to smear Burns and his clients for seeking the opinion, which he says they have the right to do. He said the collection companies are using another delay tactic because they don’t like the order and the ruling by the arbitrator.

“They cry ‘forum shopping’ when they, themselves, have fought so hard to keep this issue from the courts and put it into the hands of the state agencies,” Adams said.

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  1. FRM
    If they use a mechanics lien, that lien is against the property and not the person who owes it.

    For example if you buy a house or condo and they just had the kitchen cabinets replaced three months before selling it to you because it was less than six months you had better get a lien waiver from the person doing the work or you will pay for it on top of the purchase price.
    I would suggest that before I closed on a house today in the Las Vegas market I would either make an adjustment to the purchase price or have a lien wavier from the HOA.

  2. casinokid -- excellent point, but it needs to be fleshed out. Suing the property instead of the person (natural or artificial) is nothing new -- I've seen case law from the 1920s (State v. 1920 Studebaker Touring Car). It puts a spotlight on a legal fiction that should have been nipped at its inception instead of helping it down the slippery slope.

    Nice to see a judge actually bucking the trend! Unfortunately that's rare. As a recent article link showed here, the average foreclosure trial in a Florida court room lasts seconds.

    "The legal system has also been wounded by lawyers who themselves no longer respect the rule of law ..... When lawyers cannot be trusted to observe the fair processes essential to maintaining the rule of law, how can we expect the public to respect the process?" -- the Honorable Edith Jones to Harvard's Federalist Club "American Legal System Is Corrupt Beyond Recognition, Judge Tells Harvard Law School" 2/28/03