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October 25, 2014

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Investors take on HOAs, and residents might suffer

Collection-agency fees on top of delinquent dues prompted litigation

Image

Steve Marcus

A view of the master-planned community Mountain’s Edge in the southwest Las Vegas Valley on Friday, Aug. 6, 2010.

The crippled Las Vegas housing market has triggered a legal battle pitting investors buying foreclosed homes against homeowners associations, with millions of dollars at stake.

This is no David vs. Goliath showdown, as the two groups are more likely viewed by the public with equal disdain.

The outcome, if the investors win and the more than 200 HOAs lose, could ultimately bump up monthly association fees throughout the valley.

The fight began when home prices started falling sharply in 2008 and 2009 and the valley had more than 20,000 foreclosures a year.

Investors locally and from elsewhere began swooping in and buying up foreclosed homes and condos Median prices have fallen about 60 percent since the market peaked in 2006.

Homeowners associations wanted to recoup the monthly dues lost when homeowners stopped paying and their homes went to foreclosure. They needed the money for pool maintenance, landscaping and other upkeep that sometimes was cut back because of tight budgets.

The associations used collection companies to get what state law entitles them to — up to nine months of past due HOA fees.

The key issue — and what will probably be dragged out all the way to the state Supreme Court — is collection companies tacking on their fees to the delinquent HOA dues they have been trying to collect, in many cases for longer than a year. If associations lose and can’t get past-due fees, assessments on paying homeowners will probably increase.

That additional charge for collections has run several thousand dollars in some cases and exceeded what the investors sometimes had to pay in delinquent HOA dues. With collection costs averaging about $2,000 per foreclosed home, investors said the amount owed could easily surpass $50 million.

This year, a group of 18 investors filed two lawsuits in District Court, one against HOAs and the other against collection companies.

Judges dismissed the lawsuits because state law requires that such disputes be mediated by the Nevada Business and Industry Department’s real estate division before there are legal challenges. Both sides expect new lawsuits in coming months because no settlement is likely.

James Adams, whose Adams Law Group sued homeowners associations and collection agencies, said supreme courts in other states have ruled that nothing can be collected beyond normal assessments.

With the additional charges, “every day this illegal activity occurs, the homeowners associations are racking up damages they are going to pay my clients,” Adams said.

David Stone, president of Nevada Association Services, a collection company, said investors are convinced they are right but the law isn’t on their side.

“We are fighting this tooth and nail,” he said. “These real estate speculators are upset, and it’s an emotional thing for them. They don’t want to pay the association anything. They just want to scare the association.”

Rutt Premsrirut, one of the investors behind the lawsuits, said the dispute is about more than protecting investors. It is about homeowners who face penalties from their HOAs and have to pay collection companies as well.

He said investors don’t want to hurt the association but don’t think the collection companies are entitled to money.

“The HOA is allowing the collection agencies to charge all of these fees, but the board never gets the bill and they don’t know if it’s $10,000 or $50,000,” he said. “We don’t have anything against the HOAs. It is the collection agencies. I don’t mind paying the HOAs their money.”

Stone said if collection companies aren’t allowed reimbursement for their expenses, associations couldn’t hire someone to collect what is owed to them. That, he said, is unfair to homeowners who pay their dues and would have to make up any shortfall.

“These speculators have it all wrong,” Stone said. “They think collection companies are making a ton of money but that is not the case.”

In agreement is Chris Yergensen, corporate counsel for RMI, a property management company, and its affiliate, Red Rock Financial, a collection company. He said some cases appear unreasonable, such as when there are $2,000 in fees on a $500 account. But, he argued, the collection process may take two years, including filing legal documents.

“They are greedy real estate investors,” he said. “They buy properties from banks for $30,000 and flip that property within a month for $60,000 and they complain about collection costs.”

Premsrirut said the collection companies don’t provide any community service. Not having to pay steep collection fees means money would be freed up for rehabbing homes, changing the carpeting and painting.

If HOAs lose the legal battle and become financially unsound, they could go into receivership.

“It would be a social crisis in this state for homeowners associations,” Stone said. “It would definitely raise the assessments.”

Investors appear to have already lost the struggle: The state Common Interest Communities and Condominium Hotels Commission is expected to approve a cap by the end of the year limiting collection companies to charging $1,950. The investors argue that’s too much and fear loopholes will allow them to be charged much more than that.

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  1. Investors flipping houses back and forth to each other like a game of catch should be made responsible for past due homeowners fee's.

    As for all the idiots who were stupid enough to pay triple the cost of what a house was really worth a few years back, with no money down, never had a stake in the house anyway...

    Look before you leap boys

  2. Someone's worried about an apostrophe?? This is a comment board, not an english class. Silly...

  3. We can all use a little help in the grammar dept now & again.

  4. "How about a good old dose of financial accountability?"

    bellrock1 -- how about "a good old dose of" basic contract law? If I didn't make the contract with the HOA I'm not liable. I just shut down a local attorney with that one. I don't owe just because someone else says I do.

    Look it up -- to "owe" means "to have a legal duty to pay funds to another." Source: dictionary.law.com/Default.aspx?selected=1427

    "The paper bubble is then burst ... there will be a general revolution of property in this state." -- Thomas Jefferson by letter to John Adams, 1819, from "The Works of Thomas Jefferson" Vol. 12

  5. Many of you still do not understand HOAs.

    <Question 2: Why can't HOAs (gotta watch the apostrophe) put liens on properties?>

    They can and they have. People have lost their homes because of being delinquent just a couple hundred dollars (WORST offenders - those who live in expensive homes in places like Red Rock Country Club, Rhodes Ranch, Summerlin). They were able to afford the $5000 a month mortgage payment but not the $500 HOA fee every month.

    Bakersfield's post sums it up quite well. When these investors bought these homes, they KNEW there were most likely past due HOA dues and also liens against the properties for these delinquent dues. But proceeded to buy anyway hoping they could avoid paying those dues as evidenced in this lawsuit. If you or I wanted to buy a home and it had outstanding dues owing - those dues MUST get paid before you take ownership. In the case of all these foreclosures - the BANKS should have been paying the dues. In the case of a normal house sale - the owner must have the dues up to date or sometimes - the house cannot be sold. Lot of times these homes have liens against them and the buyer has to, unfortunately, pay off the lien before taking possession.

    Environprotector: You don't know what you are talking about. Yes, HOAs get a bad rap but they are not THAT bad. Most HOAs are willing to work with homeowners; it's the ones that are a pain in the ass that they don't like and THOSE PIA's start bad mouthing HOAs.

    In our first community we lived in, our HOA dues kept going up because of the usual vandalism that EVERY gated community comes across at one time or another. The F'in punks from other neighborhoods would jump the fence at the pool, screw around in the pool for hours and THEN do damage. It got so bad one year, the HOA even thought about draining the pool and just cementing it in but the HOA members fought that because it was a selling point for the community. Over a 2-year period of time, the HOA spent upwards of $20,000 doing repairs, replacing the fence, etc. around that area and guess who had to pay for it? The HOA members. Then of course, the Section 8 houses NEVER had to pay any HOA dues. As I understand, they were exempt. So God knows if the owners of those homes ever paid those dues or not; my guess they did not. But because the owners had the Section 8 thing going on, were most likely forgiven any dues they owed.

    KillerB
    I'd like to hear about how you won against your HOA, or how you "shut down" an attorney.

    Bottom line: The investors are going to lose. I use to have a copy of the NRS 116 statute (worked in this field of law for 3 years while in Vegas) but I think it is in storage. It is all very easy and specific about the HOA dues and liens put up against a property.

  6. "KillerB I'd like to hear about how you won against your HOA, or how you "shut down" an attorney."

    Det_Munch -- already did.

    It's not rocket science, just basic contract debt principles. My response to the first demand was a simple letter telling them to prove the claim. The response was copies of bills and demands -- evidence of debt only, nothing showing that any debt was created. My second letter said to either show the contract the trust that owns this house signed with the HOA or leave us alone. That was two months ago.

    I like the definition from the 6th Abridged Black's Law Dictionary, that debt sits on three legs -- it's owed, it's due, and the demanding party has the legal right to collect it. Kick out one of the legs and there's no debt.

    Like I said, this isn't rocket science. And few attorneys are rocket scientists.

  7. commoncentsnow -- so you prefer to live where everyone else is just like you? Just a guess but you prefer a Stepford wife, too?

    You're right, it's about choices.

  8. HOA is required for certain communities.

    These investors/banks should have paid their dues when they were suppose to, now that it is overdue, they have to pay more. THey should be lucky interest rates aren't 10%+++ on it, as it should be.

    Stupid litigation from cheap ass flippers.

  9. anthonyjoe

    The late charge fees an HOA charges are minimal at best....until you are consistently late and then the fees will definitely add up. Wouldn't it have been better to pay the $450 (or even before that amount got as big as it was?) You must have had several fines imposed to get up to that $450 since HOAs DO give you time to pay the fines when first levied against the property. And the first time around, it is a minimal fine pending on the violation.

    I seem to recall you are an absentee owner living in Indiana. It is hard when you are not actually physically there to see what goes on with your property. My ex keeps getting dinged fines because his "live in caretaker/security person" aka "me", no longer lives in the house and he has no one to take care of it for the last 2 years so the property has not been maintained properly any more so the fines keep coming. Unless you want to pay someone to keep up the propery, this will keep happening. Weeds grow, if something malfunctions with the pool equipment, major problems there. So I don't feel sorry for the absentee homeowners at all. Renting the property out is another major problem with a whole new set of problems with tenants. NEVER expect the tenant to pay the dues unless you bury it in the rent. And again - NO guarantee the tenant will maintain the property as required by the HOA. If you are not there to live in Vegas the majority of the time - don't buy a house, buy a condo.

  10. Three things that I know should have came into play here is.
    1. RESPA
    2. Special Warranty deed
    3. DUE DILLIGENCE
    I would have checked for any liens and if there were any I would have made an adjustment on the purchase price.
    Special Warranty deed are issued in lien theory states which is basically say the bank will only guarantee the title while they had owned it.
    And last but not least the Real Estate Settlement Procedure Act the debits and credits to the buyers and sellers.

  11. commoncentsnow has a point:

    Anyone here who hates HOAs or refuse to live in an area without one - go drive around the neighborhoods in Vegas NOT under an HOA. There was a difference 5 years ago and my guess NOW, it is worse now in those neighborhoods. I read an article in the RJ a couple of weeks ago about a neighborhood in the northern part of NLV. I remember this neighborhood very well since I drove by it every day. It was very nice with really nice homes. The description of the place NOW, with all the foreclosures, sounds like a ghetto. At least with an HOA, you have a fighting chance to keep the neighborhood decent. Without one - it becomes another trash area.

    I now obviously live in an area that wouldn't know an HOA from...whatever. Since I am so used to living in an HOA, when I walk around the neighborhood, 98% of the neighborhood is nice - everyone keeps their properties up very nicely, ie the grass, gardens, the homes themselves but then every so often I come across that "2%" - a house that is disgusting looking and I think "wow, if they had an HOA, this wouldn't be happening". It DOES take away from the rest of the homes and the neighborhood.

    But some weekend - all you HOA naysayers get in your car and drive around. Also - some neighborhoods have HOA's but are not gated. But again - you will be able to tell the difference.

  12. Another thing people forget because they do not know anybetter and they should: when you buy a house, you ALWAYS check the "money trail" - are their any liens against it? Any unpaid HOA dues? And that information is available to you so you can't cry "I didn't know". There was an incident several years ago where this woman bought a house and THEN finds out there were late HOA dues, including liens against the property. She went public with what she was going thru to get sympathy from the public and how she was not told the truth blah blah blah. We all thought she was pretty stupid! If yourself cannot do it, then it is the responsibility of your realtor to find out about these "little inconveniences". In this story, at the time - she couldn't move into the house UNLESS she paid all these overdue fines and take care of the liens and she didn't have the money to pay all this. But then her realtor may not have cared because he/she got their commission and who cares about the buyer! I think this happened around '06.

    The Clark County Assessor's website is very easy to navigate to find out who owns a house, how many owners a home has had (remember one we liked, the house was 5 years old and it had SEVEN owners already!! Alarm bells went off on that one!) There is no excuse any more for any one - investors, regular buyers - not to do their research before hand.

  13. If I was to buy in the Las Vegas market today I would demand from the seller a lien wavier from the home owners association, contractors etc. if you don't get them then don't buy the seller can figure out why it hasn't sold.

  14. You never pay past HOA liens when you buy a house. Who's that stupid?

    Just be careful of Realtors, I've asked them abouts past liens and such and they said its clean, then when I do my own checking I find out its not.

    Most HOA's have a grace period as well, that gives you ample time to gear up and clean before warnings/fines start taking place.

    I'd never live in a non-HOA community. Way too ghetto from what I've seen, especially in this economy.

  15. Part 1

    In my youth, law firms required young real estate lawyers to learn all of the laws and regulations pertaining to condominiums, planned developments and homeowners associations. We learned that most progressive states had a logical web of laws to protect home owners from being ripped off by management companies for their HOAs, lawyers for their HOAs, and developers who controlled HOAs and HOA management companies. Aggrieved homeowners could sue their HOAs and HOA managers in real courts.

    Yet even in progressive states, homeowners and HOA boards of directors still constantly discover that they have been ripped off by HOA management companies and law firms hired by those managers to "represent" the HOAs. Beginning in 1998, my own not-Nevada HOA's members began to discover those sorts of rip-offs, by one of the largest HOA management companies in the state. That management company's Executive VP was running a not-terribly sophisticated skim and kick back scheme. The man was under investigation by the state's Insurance Commissioner and Attorney General, for more than a year. All of the HOAs' money was in a bank account controlled by the man, co-mingled with the money of other HOAs, some of which were the subject of the rip-off and skim.

    All the while the state was investigating this HOA manager, my HOA's attorneys, from one of the largest "homeowners association expert law firms" knew of the state investigation and co-mingling of associations money. Those law partners did ABSOLUTELY NOTHING to warn their client HOAs' Boards of Directors that they were at risk of losing their money and property to the corrupt manager.

    Finally, the local cops arrested the HOA manager on theft and fraud charges which the Insurance Commissioner had established. Only then did one of the name partners in this HOA-expert law firm admit that "We couldn't warn your HOA of the investigation of your management company's Executive VP, because he is a tremendous source of referrals of business to us. If you want to sue him find another lawyer for your HOA."

    The HOA manager ultimately plead guilty and did prison time. However, the accounting records of the HOAs were so mixed up, no HOA was ever sure it got all of its money and never figured out how much the convicted manager had embezzled from each of them. That would not have happened if the lawyers hired by the HOA manager had done their fiduciary duty to their clients, the HOAs.

    So whose name do I see in Nevada, year after year as the Nevada Legislature meets, lobbying against reforms to protect homeowners and the bank accounts of their HOAs? That same lead lawyer who would not rat-out my old HOA manager hauled away the cops.

    This HOA-expert lawyer took the Nevada Bar exam; his firm opened an office is LV; and now he touts himself to the Legislature as an "expert" they should listen to on HOA issues.

    And except for Sen. Mike Schneider, the Legislature does listen to him.

  16. Part 2

    My bottom line is that Nevadans are abused and ripped off by the HOAs BECAUSE of the effective lobbying by the HOA management companies, HOA-expert lawyers, CAI, and developers who own and control the management companies for several large new communities. They have created the Ombudsman's Office, and its requirement for arbitration of all disputes, at the expense of the homeowner. The news reports that homeowners who take matters to the Ombudsman wind up paying tens of thousands of dollars in arbitrators' fees. I have yet to read a news story where the Ombudsman's arbitrators have ruled in favor of a homeowner.

    This club of HOA manager, lawyer, developer rip-off artists have manipulated the Ombudsman's Office to create as an impenetrable barrier to homeowners suing, at reasonable cost, to vindicate what few rights homeowners do have under Nevada law. Even as the Nevada Legislature creates more and more rights for homeowners (see http://red.state.nv.us/CIC/Publications/...) the HOA managers and their captive collection agencies, the HOA lawyers, and the developers who control HOA Boards of Directors just laugh at the Legislature and the public, and keep manipulating, finding new loopholes, and ripping off the public.

    In contrast, in most other states a homeowner can sue in small claims court, or in regular trial courts, and get a speedy remedy for wrongdoing by HOA managers and their puppet HOA board members.

    Nevadans, as usual, are cheated by rip-off artists who lobby the Legislature and the Nevada Real Estate Division, gaming the system.

    In the next session, if homeowners are to receive the justice to which they are entitled under Nevada law, the Nevada Legislature needs to abolish the Ombudsman's office, abolish mandatory arbitration, and restore homeowners Constitutional rights to a trial in front of a judge and jury.

    As to my homeowners' association, recently I learned the developer who controls its management company is banking the HOA's money with an out of state bank (not allowed under Nevada law), is co-mingling my HOA's money with the money of other HOAs, and has pledged (mortgaged) all of the bank accounts to a large out-of-state bank as security for a multi-million dollar debt of the developer. Will I do anything about this breach of fiduciary duty by the HOA management company which the developer owns, or the breach of fiduciary duty by the puppet Board of Directors of my HOA? Of course not. I am not going to waste my family's money dealing with the Ombudsman and the corrupt HOA lawyers. If our HOA loses its $1+ Million in reserves to the developer's bank, c'est la vie...or rather c'est la Nevada.

  17. Tom: Contact the HOA company directly.

    When I first moved here, the HOA I had were a bunch of crazy power hungry freaks which I had to fight over and over again.

    I don't know how it happened, but we somehow kicked them out, and got another one. This one has been awesome. I believe they are called RMI, one of the two. Nothing but good and no harassment/complaints from anyone I know of.

    So if you're having problems with your HOA, fire them and get another. You aren't FORCED to use that company, and people don't understand that option.

  18. If the bank refuses to work with the borrower and decides to take the property back then THEY should also be responsible for its upkeep including the HOA fees. This would motivate the banks to work with prospective buyers and help to keep the property more presentable verus today where people place offers on homes and then fail to hear back from the lender for two months. The banks make thousands of dollars in fees and profit AND are the actual owners between sales. Just a thought.

  19. Birdiedreamin -- why?

  20. <The fees pile up because someone has become a deadbeat. When a letter arrives telling you that if payment is not received by such and such date it will go to a collection agency....you might want to take care of it.

    Most who owe thousands have continually disregarded notices. It comes in the mail and they toss it in the garbage. No sympathy for the ones who utterly disregard their financial OBLIGATION>

    Good post, Tom. That basically is it in two small paragraphs. If it gets to a point where the past due amounts are sent to collection, the owner totally disregarded the notices and had no intention of paying.

    As someone above mentioned, if you are cited for something ie weeds, dead plants, leaving your garbage cans out in full view constantly etc. the HOA does not demand payment of the fine immediately. You are sent a notice of the violation and given X amount of time to fix the problem (we left our Christmas lights up one year past January 1 (unlit, just still up). We received a notice and had until Feb. 15 to fix the problem and THEN fines would be levied). If the problem continues, more notices are sent and fines are added. They only get to be substantial after the owner repeatedly refuses to fix the problem.

    So if you end up having it go into collection, then YOU are the ignorant deadbeat - NOT the HOA.

    I have a feeling some here that are against HOAs are the ones who scoff at the letter saying pull those 5 weeds you have in your front yard within the next 30 days or else you will be fined $25 plus a late fee if the weeds are not pulled by the due date. I think the other definition of pulling those weeds is "upkeeping your home and property".

    There are also only a few trustworty management companies in the Valley. And as an HOA member and if you feel something isn't right with anything such as your fees have gone up and are offered no explanation, you have a right to view the accounting books of your HOA at any time. Pop in unannounced to the office and asked to view them and don't take No for an answer!!!