CARSON CITY — A Las Vegas attorney Friday said the Nevada Supreme Court gave a legal victory to homeowners associations and their residents when it ruled that “house flippers” who fully paid off liens to quickly sell their investments at huge profits cannot now recoup some of that money.
“It is good news for homeowners associations,” attorney Pat Reilly said. “It is also very good news for homeowners in the associations. If the associations had gotten tagged for the millions of dollars these lawsuits were seeking, the costs would have been passed on to the people who are paying their dues every month on time.”
Although the Thursday ruling applied only to one property owner, there are more than 500 other claims involving similar circumstances that are part of a class action lawsuit against Peccole Ranch, he said. There are similar class action lawsuits underway on the same issue against other associations, Reilly said.
Reilly, with the firm Holland &Hart, said the house flippers made huge profits after paying off the liens, which were worth only a few thousand dollars each.
Reilly, who represented a collection agency, Nevada Association Services, in the case said the ruling should halt the lawsuits.
But attorneys for the property owner and the other members of the class action disagreed that the ruling ends their legal efforts to recoup a portion of the payments. Instead, the issue of whether the payments to satisfy the liens were voluntary or made under duress now will have to be considered in District Court, attorney Puoy Premsrirut said.
“Every one of our cases involved foreclosure proceedings and notices of default against the property owner,” she said. “They did not have a meaningful choice.”
Attorney James Adams said it will be up to the associations as the case proceeds to show that the payments were voluntary. Property owners do not have to show they were involuntary, he said.
The opinion, issued Thursday, found that the “voluntary payment doctrine” precluded the purchaser of a residence in Peccole Ranch from attempting after the fact to recover fees it paid to the community association to obtain clear title to the property so it could be sold.
The legal doctrine says that someone who makes a payment voluntarily cannot recover it later on the ground that there was no legal obligation to make the payment.
The ruling went against Elsinore LLC, which purchased a home in the common interest community and paid off a lien to the association for back fees and associated collection costs. Elsinore then sought to recover assessments and fees it had paid to obtain clear title.
The Supreme Court opinion limited itself to the one property owner and not all members of the class.
According to filings in the Supreme Court case, Elsinore purchased the Storkspur Way residence for $149,000 in September 2008. The company then paid the association $2,580.70 to satisfy the lien for unpaid assessments and related costs. In December 2008 Elsinore sold the property for $225,000, making a $76,000 profit. Several years later Elsinore sought a return of a portion of the lien.
The Supreme Court said the voluntary payment doctrine applied and ruled against the claim by Elsinore. While there are exceptions to the doctrine, they did not apply in the Elsinore case, Justice Nancy Saitta wrote for the court.
Contact Capital Bureau reporter Sean Whaley at firstname.lastname@example.org or 775-687-3900. Follow @seanw801 on Twitter.