Judge halts capping of ‘super priority’ foreclosure liens

District Court Judge Susan Johnson on Thursday issued a temporary restraining order against enforcement of a state regulatory advisory opinion that caps the amount collection agencies may charge under "super priority" liens against homes in foreclosure.

Under Nevada law, homeowner associations are allowed to collect an amount equal to nine months of homeowner assessment fees through liens that have priority even over mortgage loans. The homeowner association liens are called "super priority" liens because they are first in line for recovery when a home is sold.

In a Nov. 18 advisory opinion, Financial Institutions Commissioner George Burns found that collection agencies, which he licenses and regulates, cannot collect more than the sum of nine months of homeowner assessment fees through super-priority liens.

Collection agencies can charge additional fees, but they cannot include the additional fees in super priority liens, Burns ordered.

Real estate attorney Tisha Black Chernine applauded Burns decision, saying that collection agencies have tacked on excessive fees in the super priority liens, often surprising buyers and sellers at closing and causing cancellation of sales.

Black Chernine said she has seen situations where the collection agency demands $5,500 in collection fees for $100 in past due association fees.

Burns said collection fees often create obstacles to home mortgage refinancing, home mortgage modifications and short sales, in which a lender allows the owner to sell a home for less than the amount owed.

On the opposite side of the argument are three collection agencies -- Nevada Association Services, RMI Management and Angius & Terry Collections. They are plantiffs in a lawsuit filed late Thursday in Clark County District Court.

The plaintiffs challenged the advisory opinion and asked the judge to issue a temporary restraining order and ultimately an injunction against the state enforcing Burns' advisory opinion in its regulation of collection agents.

The judge signed the temporary restraining order on Thursday, the order was filed Friday and a hearing was scheduled for Tuesday.

The plaintiffs also seek a declaratory order overturning Burns' advisory opinion and more than $10,000 in damages. The plaintiffs are suing Burns in his official capacity and individually.

The lawsuit complains about real estate "speculators or 'flippers' who have made hefty sums of money by flipping distressed foreclosure properties (and) have filed storms of litigation in the past year disputing the interpretation of the super-priority lien statute."

The advisory opinion "is not about fat-cat investors. It's about John Q. Public," Burns said.

"The collection agencies are just charging whatever they want to and loading it up," Burns said.

Homeowners and buyers often discover a collection agency demands several thousand dollars in fees they cannot afford, Burns said.

First-time homeowners have scraped together enough money for a down payment on an affordable home only to discover they must pay $4,000 to $6,000 in collection agency fees under super-priority liens, Burns said.

As a result, the sales transaction "blows up" and the house remains vacant, he said.

Collection agency fees are making it harder to sell foreclosed properties, which need to be sold and occupied, rather than being left vacant, Black Chernine said.

The commissioner's advisory opinion is "going to help houses move in our market, which is what we need," the lawyer said.

In the lawsuit, plaintiffs' attorney Patrick Reilly argues that the advisory opinion violates his clients' constitutional rights to "due process" and property and liberty interests in their businesses and licenses.

The lawsuit said that Burns' advisory opinion conflicts with a decision by District Judge Jackie Glass in Korbel Family Living Trust v. Spring Mountain Ranch Master Association but acknowledges that Glass made no "specific findings" in her order.

The lawsuit cites other civil cases and claims the financial commissioner has no authority to issue the opinion.

Contact reporter John G. Edwards at jedwards@review
journal.com or 702-383-0420.