It’s about time our communities caught a break

Oh, Mr. Friedrich, give me a break! The Nevada Supreme Court got it right! It blows my mind that a Common-Interest Communities and Condominium Hotels commissioner whose seat is earmarked for a homeowner representative would call this ruling “a potential disaster for residential real estate … ”

That’s what Jonathan Friedrich told the Las Vegas Review-Journal in a Sept. 19 article about the recent court decision on the superpriority lien held by local homeowners associations. The court said the superpriority lien could supersede the first deed of trust on the property.

Apparently Friedrich is afraid that banks will stop lending here if they think they could lose their loans. I don’t think the banks will lose their loans without a fight. Remember, all they have to do is pay the HOA assessments like we all do.

This is a complicated matter that will surely involve a flock of attorneys, lawmakers, bankers, investors, title companies and communities. The court is expected to later decide whether late, legal and collection costs would be included in the nine months’ assessment default.

For years, HOAs have felt the brunt of the banks’ inactivity. A hefty financial burden hits communities when banks refuse to pay fees on foreclosed homes. Also, communities suffer when banks don’t keep homes in good physical condition. There are hundreds of homes, many of which have delinquent bank loans and have been abandoned, that yield no assessments for associations and haven’t drawn foreclosure action from banks.

Many associations have been financially unable to initiate foreclosure on delinquent homes for nonpayment of assessments. Many of the homes were upside-down (loans substantially greater than current market value); in these cases, the associations were unable to sell the homes at foreclosure auctions. This left many communities having to pay collection costs, assume homeownership and incur new expenses such as property taxes, maintenance and insurance.

Many HOAs were afraid to foreclose on homes given legal uncertainty. Many are unsure they could get a clear deed. Some ended up renting out the homes.

Mr. Freidrich, who do you think had to pick up the tab? Increased assessments or special assessments were paid by the remaining homeowners within communities to assume the lost income in operating their communities or, worse, increased assessments with decreased services to create a balanced budget. Many owners could not afford to pick up those costs forced on them by their “neighbors.”

In 2013, the Legislature passed Senate Bill 280, which would let lenders impound association fees, in the way lenders of impound property taxes and insurance expenses under Nevada Revised Statutes 116.3116 (3). Lenders could have taken advantage of the new law to insulate themselves from losing loans in their portfolio.

The Nevada Supreme Court decision didn’t address what is included in the superpriority lien. A series of lawsuits against HOAs had been making its way through the court system, claiming the superlien law includes only the last nine months of delinquent assessments and not late, legal or collection costs.

In reading any document, in this case, NRS 116, you can focus on one section of the law to the exclusion of others. This is what some attorneys have done in presenting their case to the courts.

If we look at all of NRS law, what does it say? Under NRS 116.3102, “the powers of the association,” section 1K, the association “may impose charges for late payment of assessments pursuant to NRS 116.3115.” NRS 116.310313, (1), “collection of past-due obligations,” states “an association may charge a unit’s owner reasonable fees to cover the costs of collecting any past due obligation.”

Section 3a of this law defines costs of collecting to “include any fee, charge or cost by whatever name, including without limitation, any collection fee, filing fee, recording fee, fee related to the preparation, recording or delivery of a lien or lien rescission, title search lien fee, bankruptcy search fee, referral fee, fee for postage or delivery and any other fee that an association charges a unit’s owner for the investigation, enforcement or collection of a past due obligation.” (Please note that the law was changed in 2009 to allow the Common-Interest Communities and Condominium Hotels to regulate the amount of fees that an association may charge pursuant to this section of the law). NRS 116.3115 (3) regulates the amount of interest an association can charge against delinquent accounts.

Interesting to note that when the Legislature created a second superlien law that pertained to maintaining units’ exteriors, NRS 116.310312, sections 4-6, the law explicitly included reasonable fees such as interest and collection costs.

By logic, if the Legislature wanted to include these costs in the maintenance superlien, it would also include these costs with the association fees that are association communities’ primary income source for operations.

Before most actions go to court, a Chapter 38 arbitration or mediation must be completed. Interestingly enough, that statute states the following, which I think gets overlooked in this whole process:

NRS 38. 300 defines assessments in an association as,

1. “Assessments” means:

(a) Any charge which an association may impose against an owner of residential property pursuant to a declaration of covenants, conditions and restrictions, including any late charges, interest and costs of collecting the charges; and

(b) Any penalties, fines, fees and other charges which may be imposed by an association pursuant to paragraphs (j) to (n), inclusive, of subsection 1 of NRS 116.3102 or subsections 10, 11 and 12 of NRS 116B.420.

2. “Association” has the meaning ascribed to it in NRS 116.011 or 116B.030.

Courts often consider the Legislature’s intent. In this case, lawmakers who introduced the superlien had explicitly stated that it was to include reasonable fees of late, legal and interest and collection costs. Standard, recognized business procedures for any business that tries to collect a bad debt include not only the principal but late, legal and collection costs. Associations should have the same rights.

Hopefully, the Supreme Court will come to the same conclusion. If not, homeowners, you should prepare to see increased operating expenses in their 2015 budgets that add nothing to the enhancement of your communities but will add higher assessments for them to pay out from your pocketbooks.

Barbara Holland, certified property manager, broker and supervisory certified association manager, is president and owner of H&L Realty and Management Co. Questions may be sent to the Association Q&A, P.O. Box 7440, Las Vegas, NV 89125. Fax is 702-385-3759, email is

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