Mortgage lenders and housing investors are squaring off in Nevada over a court decision that has allowed thousands of foreclosed homes to be sold for pennies on the dollar, in a case that could have big implications on an already-tight home-loan market across the country, the Wall Street Journal reported today. At issue are homeowners associations and the liens they put on properties when a homeowner stops paying dues. Homeowners associations enforce rules in a community and collect dues to maintain common areas and pay for repairs. Like lenders, homeowners associations can foreclose on homes to recoup delinquent payments, an option that many have taken after waiting years for lenders themselves to foreclose, a scenario that has left homes without dues-paying owners and some HOAs strapped for cash. Nevada and about 20 other states have laws that allow HOA liens to get priority over first mortgages. The result, according to a recent state court decision, is that homes can be put up for auction by HOAs—without the blessing of the mortgage lender—and sold, extinguishing the first mortgage and allowing the investor to get title to the home. Such sales often are for an amount equal to or slightly above the HOA dues in arrears. In a court filing yesterday, the Mortgage Bankers Association wrote that because of the decision, “mortgage lenders stand to lose millions—perhaps even billions—of dollars in security interests.” Lenders nationwide have argued that HOAs should have to foreclose through the court system and shouldn’t have the power to wipe away entire mortgages. But in a closely watched case in September involving Bank of America Corp. , the Nevada Supreme Court said that they can do so, and sent the case back to a lower court. Last week, Bank of America requested that the state Supreme Court reconsider.
