Amendment to SB258 would hurt HOAs

Members of the Assembly and Senate are trying to pass an amendment to SB258 that would allow delinquent owners to sue their homeowners associations for foreclosing on unpaid assessments.

The amendment, to be decided in conference committee with no public debate in the final week of the legislative session, represents a dramatic change for HOAs. Equally troubling is the fact that no legislator is willing to say who drafted this amendment. This seems a bit sneaky to me. Where is the transparency?

The Nevada Homeowner Equity Protection Act would add a new section to Nevada Revised Statutes 116, which would allow a delinquent owner whose unit was sold at an HOA foreclosure sale to sue the association.

A court could set aside the HOA’s foreclosure sale on the basis that the sale was “commercially unreasonable.” The amendment defines “commercially unreasonable” as a purchase price at the foreclosure sale that is less than 20 percent of the unit’s fair market value. A court could presume that a sale is commercially unreasonable if the unit sold for less than 40 percent of fair market value.

By these definitions, most HOA foreclosure sales are “commercially unreasonable” because:

■ By statute, the HOA cannot set the opening bid any higher than what it is owed in assessments and costs of collection, which rarely exceeds 20 percent of a unit’s fair market value.

■ The HOA has no control over how much a third party will bid and cannot force bidding to continue until it surpasses these arbitrary thresholds.

■ If the HOA bids and takes title to the unit, which is what happens when there are no third parties interested in buying the unit, the sale price will almost always be “commercially unreasonable” because the credit bid is no more than what is owed in assessments and collection costs.

If passed, the financial consequences of this amendment on the HOA and its members are enormous:

1. The delinquent owner would regain ownership of the unit without having to pay the delinquency as she would have to do if she redeemed the unit within the current 60-day redemption period.

2. The HOA would have to reimburse the third-party purchaser everything the purchaser paid at its foreclosure sale.

3. The HOA would have to pay its debt collector for its work.

4. The HOA would either have to make a claim on its insurance for defense and indemnity or pay out-of-pocket for the cost of litigation.

5. Before any foreclosure, the HOA would have to pay for an appraisal of the unit’s fair market value — a value that would be disputed in the litigation this amendment contemplates — in an attempt to ascertain whether the amount owed met the 20 percent “commercial reasonableness” threshold.

The practical effect of this amendment would be to require hardworking owners who pay their assessments to carry delinquent owners.

In 2015, the Legislature protected delinquent owners by giving the them 60 days after an HOA foreclosure sale to redeem the unit by paying what was owed to the purchaser.

After that, the sale became “final” and the purchaser had good title to the unit. This amendment goes too far in protecting the delinquent at the expense of each and every owner who pays his assessment timely.

Conference committee members are:

Steve Yeager, Assembly District 9 (Clark County), Steve.Yeager@asm.state.nv.us, 775-684-8549.

Justin Watkins, Assembly District 35 (Clark County), Justin.Watkins@asm.state.nv.us, 775-684-8573.

Lisa Krasner, Assembly District 26 (Washoe), Lisa.Krasner@asm.state.nv.us, 775-684-8848.

Barbara Holland is a certified property manager, broker and supervisory certified association manager. Questions may be sent to holland744o@gmail.com.