Response to Nevada Association of Realtors Attack on the Consumer Protections of More than 500,000 Residents Living in Community Associations

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1 Response to Nevada Association of Realtors Attack on the Consumer Protections of More than 500,000 Residents Living in Community Associations The Nevada s Homeowners Association Super Priority Lien report released on July 5, 2017, is a direct attack on consumer protections in place to protect the property value and investment of more than 500,000 residents living in Nevada community associations. The report attacks Nevada homeowners associations on three main fronts: 1. Failing to acknowledge the actual cause of the housing crisis and fallaciously blaming the loss in property values on HOA foreclosures. The statements of property value loss is grossly inaccurate and misrepresentative as is the management companies roles in foreclosure. 2. Misrepresenting residents views of associations. The report polled voters, not residents living in homeowners associations. Over half of the people surveyed do not live in an HOA. 3. Blaming lenders losses on community associations. The report reaches questionable conclusions referring to its calculation of lender losses. The depression-like conditions caused by the housing crisis caused serious disruption to American families, including: displacement, financial insecurity and extreme economic hardship. Additionally, communities experienced declining property values, physical deterioration, crime, population turnover and financial stress on local government and community associations. Community associations, also known as condominiums, homeowners associations, and housing cooperatives, witnessed record foreclosures and neighbors were left dealing with abandoned properties and community blight. Recovery in community associations has been further negatively affected by prolonged foreclosuresalso known as zombie foreclosures. These foreclosures occur when a lender begins the foreclosure process and makes the owner believe they no longer own the home. The homeowners abandon the property but the lender does not complete the foreclosure process for many months or even years. In this situation, nobody is paying community association assessments on the property. The report is riddled with bias, misleading statements, and questionable methodology. If the Realtors cared about homeowners, they would support community associations lien priority as it protects all of the residents in the community from paying higher monthly fees to maintain abandoned homes as

2 banks fail to take responsibility. This is clearly a survey conducted by a sponsoring organization with an agenda and thus the biased report. It is a clear attack on the residents living in community associations. Shifting the Blame for Loss in Property Values The report attempts to pin the property value loss of homes in community associations on HOA foreclosures. This is patently untrue. Renowned economists consistently agree the cause of the U.S. housing crisis of 2008, in part, was the widespread use of high-cost, unsuitable loans that triggered a large decline in home prices after the collapse of the housing bubble. This led to mortgage delinquencies, foreclosures and the devaluation of housing-related securities. The report blames HOA foreclosures with the responsibility for loss of property value in comparison to the actions of players such as Countrywide, Lehman Brothers and AIG. Per Zillow, in Washoe and Clark Counties the property values hit a low in This slump in property values was caused by the reasons stated from the housing crisis. After the SFR case in 2014, the case that held HOA liens have a true priority, meaning any lien that is unsatisfied by the foreclosure sale proceeds are extinguished, housing values continued to rise in all communities; including community associations in Nevada and the rise hasn t ever declined since. Property values have and continue to increase in all communities. Further, if this report wasn t biased and a clear attack on the residents living in community associations, there would be an analysis comparing changes in property values between HOA and non-hoa properties during this time. Report findings are biased Getting past the inaccurate and alarming headlines, the report states the following: Of the over 2,252 associations in LIED s database, only 287 had at least one HOA foreclosure. (Survey pages 23/64). That means that over the 3.5-year period they studied, 90% of homeowners associations experienced not a single foreclosure. Buried in an appendix in the report is a statement, Bear in mind, nevertheless that most houses exhibited no HOA foreclosures and so no loss in value. (Survey page 53). According to the Survey, the LIED Institute found that every HOA foreclosure reduces the sale price of every property in the HOA by 1.7%. Thus, LIED inferred that every property, even the ones that have not sold, suffered this same value reduction. Per its own estimate, this equates to only $2,884 for a single-family home (and under $1K for a condo) in Clark County through the worst economic downturn since the Great Depression (Survey pages 55/64). The number of HOA foreclosures in the 3-year period in Washoe and Clark counties represent far less than 1% of all foreclosures. The number of HOA foreclosures in a 3-year period in these counties is minuscule compared to the total foreclosures. Further, the methodology used to determine the property value loss (see mean and standard deviation on Survey pages 9 and 10), applies a broad brush to all homes within in a community association.

3 The statements of property value loss are grossly inaccurate and misrepresentative. If this were an unbiased report, you would see a similar comparison with non-hoa communities and blame placed on those foreclosures the banks. Further, unbiased researchers do not use words such as shocking and ordinary or regular to describe lender foreclosures in contrast to HOA foreclosures. (Survey page 10). Nor do unbiased researchers vilify management companies which are associated with collection companies while failing to mention that the total amount of collection fees is capped by law. (Survey page 32). Statements in Report Misrepresent Law The report repeatedly makes statements such as Nevada Revised Statute et. seq., which strips a mortgage lender of its first deed of trust when an HOA forecloses on a property due to delinquent HOA fees This is misleading. NRS 116 s SPL statutes only strip a first deed of trusts when a lender ignores HOA foreclosure notices and does not take steps to protect its interests. Statements in report misrepresent foreclosure method The report inaccurately states management companies foreclose on properties (Survey page 30). The homeowners associations, for the protection of the finances of their residents, have the authority to foreclose. If the identity of the company which manages the associations with the most foreclosures is relevant, then the identity of the lenders who made bad loans and the real estate agents who sold purchasers properties they could not afford should be equally relevant. Community associations protect property value as they maintain infrastructure and building components and systems, ensure common improvements, enforce restrictions, preserve architectural design, and perform related services, all of which directly benefit mortgagees by protecting the value of the property securing the loan. It is rare and expensive for an HOA to foreclose in their community. However, if a community is left without options and there is a zombie foreclosure in their community whereby all the neighbors are paying to make up the loss income from the assessments, the associations must have the right to generate recovery in their community if the banks aren t willing. Misrepresenting Residents Views of their Association The report polled voters, not residents living in homeowners associations (Survey page 32). Fifty-three percent of respondents reported that they do not pay dues to an HOA presumably, over half of the people surveyed do not live in an HOA (Q.19 Survey page 52). Thus, the results of this study may also reflect a baseline lack of knowledge about how HOAs function other than the biased information presented in the survey questions. The Foundation for Community Association Research has been conducting a benchmarking survey since 2005 regarding residents views of community associations. For the sixth time in 11 years, Americans living in homeowners associations and condominiums have told credible pollsters they are overwhelmingly satisfied in their communities. The March 2016 survey affirms the findings of almost identical national surveys conducted in 2005, 2007, 2009, 2012 and The 2016 survey was

4 conducted by Zogby Analytics for the Foundation for Community Association Research. The findings from the six surveys are strikingly consistent and rarely vary a standard margin error for national, demographically representative surveys. By large majorities, most residents rate their overall community experience as positive or, at worst, neutral. o o o They say their association board members serve the best interests of their communities. They say their community managers provide valuable support to residents and their associations. They support community association rules because they protect and enhance property values. The findings objectively refute the unfounded and unsubstantiated myth that the community association model of governance is failing to serve the best interests of residents who choose to live in them. We encourage you to download Validation: Sixth National Survey Affirms Community Association Success, (PDF), a brochure summarizing the results. Blaming Lender Loss on HOAs This report reaches questionable conclusions (Survey pages 59-64) referring to its calculation of lender losses, the report uses the following phrase Bearing in mind that each step of this calculation is subject to considerable error. Referring to its survey methodology, the report states: In addition to sampling error, question wording and other practical difficulties in conducting telephone surveys can introduce error or bias into the findings of public opinion surveys (Survey pages 34/64). The assumption in the report that every single (611) had the first deed of trust extinguished is a grossly incorrect. The report itself states, If the HOA forecloses a super priority lien, it may, come cases, eliminate the first mortgage (survey page 5) and bearing in mind that each step of this calculation is subject to considerable error, the aggregate amount lost by lien holders (Survey page 57) To pin the lender loss on a homeowners associations is a deflection of responsibility. The lenders receive notice of foreclosure and have an opportunity for a right of redemption after the foreclosure. The fault lies with the lender failing to exercise their rights. Today, the first deed of trust is not being extinguished. Lenders are no longer ignoring HOA foreclosure notices but are doing what they should have been doing all along responding and paying the super priority lien amount. Their collateral in the community is being protected, home values are rising, and neighbors are no longer having to take responsibilities (financial and physical maintenance) for lenders inaction. Fannie Mae and Freddie Mac Servicing Guides have clear requirements for lenders and dealings with HOA assessments/liens The report provides the Federal Housing Finance Agency (FHFA) said that it has not consented, and will not consent in the future, to the foreclosure or other extinguishment of any Fannie Mae or Freddie Mac lien or other property interest about HOA foreclosures of super priority liens. FHFA s position is nothing new. Fannie and Freddie guidance to lenders was always that lenders have an obligation to pay delinquent assessments to secure the priority of their loans.

5 According to, Fannie Mae Single Family 2011 Servicing Guide June 10, 2011), at 302-2: When the HOA of a PUD or condo project notifies the servicer that a borrower is 60 days' delinquent in the payment of assessments or charges levied by the association, the servicer should advance the funds to pay the charges if necessary to protect the priority of Fannie Mae's mortgage lien. If the project is in a state that has adopted the Uniform Condominium Act (UCA), the Uniform Common Interest Ownership Act (UCIOA), or a similar statute that provides for up to six months of delinquent regular condominium assessments to have lien priority over the mortgage lien, Fannie Mae will reimburse the servicer for up to six months of such advances. ); Fannie Mae Single Family 2012 Servicing Guide (Mar. 14, 2012), at (same). Statistics prove statements in report are inaccurate In fact, there is no proof that Fannie Mae or Freddie Mac have stopped lending in Nevada or any other of the 21 states with priority lien laws. The proof is, mortgage lending and Fannie/Freddie lending has increased in all states as our economy continues to recover and there have been no increases in costs. Home Mortgage Disclosure Act (HMDA) - Nevada Lending Information (These are clips of graphics from the given HMDA data page)

6 Conclusion As many people were losing their homes, their jobs, and the lives they ve created for their families, and - yes - the value of their home, their community is cutting the grass for the abandoned homes, maintaining the dismantled shutters, and paying extra money to maintain the upkeep of the association and common areas. Banks are not taking ownership of their failures in the community and refuse to pay the association assessments. Realtors are worried about their loss in commission based on lower property values and are trying to hold residents in community associations responsible not the banks. The Realtors alliance with the banks is baffling and their abandonment of consumers is disheartening. Community associations are involuntary creditors as they advance services in exchange for the homeowner s promise to pay assessments. On the other hand, lenders have the ability to evaluate a homeowner s creditworthiness in advance. Additionally, lenders can opt to further protect their security by requiring an escrow of certain assessments and property taxes, a larger down payment, obtaining mortgage insurance, as well as diversifying investments. Community associations, governed by volunteers residents living in the community are forced to create a response strategy to help local neighborhoods recover from the crisis. One tool community associations use to recover financial losses from homeowners who fail to pay their assessments are long-standing priority lien statutes. Without priority lien statutes in place, lenders have demonstrated they have no incentive to take responsibility of properties and foreclose in a timely manner. Communities ability to collect delinquent assessments affects the homeowners and all the other mortgage lenders in the community. The impact of recurring nonpayment of assessments goes beyond the resulting increase in costs which may be incurred by owners. Continuing non-payment threatens the viability of the community itself, forcing down property values within and around the community. This, in turn, affects the interests of residents and mortgage lenders. Priority lien statutes allow for a more equitable and fair balance of the burdens of foreclosure between mortgagees, associations and homeowners. The rationale behind these statutes is that banks should share in the financial responsibility when assessments go unpaid, because they have other loans in the community and their properties benefit from a stable association providing essential functions and services. Associations maintain infrastructure, building components and systems, ensure common improvements, enforce restrictions, preserve architectural design, and perform related services, all of which directly benefit mortgagees by protecting the value of the property securing the loan. Mortgagees should have a strong interest in supporting the ability of associations to be financially stable through priority lien statutes. The statutory language in states that have priority lien statutes is for the most part, consistent with the well-balanced, non-partisan language drafted by the Uniform Law Commission to address all stakeholder interests. Mortgagees and loan servicers consented to the priority lien language in UCIOA and the Uniform Condominium Act (UCA), but have failed to comply with their own guidelines obligating them to protect the asset securing the mortgage loan. Both Fannie Mae and Freddie Mac served on the UCA advisory committee when the comments were adopted in Their seller s guides have directed loan servicers to protect the property securing the loan, meaning they are responsible for paying monthly assessments. Loan servicers must protect the asset securing the loan and may recover any payments made to associations from the borrower.

7 The Nevada s Homeowners Association Super Priority Lien report fails to accurately depict the story of the housing crisis and recovery in Nevada. The residents living in community associations have worked hard to create recovery in their communities as they battled the banks in courts and Realtors and the banking industry in the legislature. This report is undoutedly published as result of the Realtor s loss in the 2017 legislative session as they pushed an amendment at the 11 th hour that would ve made it impossible for residents living in community associations to use the priority lien to collect delinquent assessments. If this report had credible findings, it would ve been released during the legislative session not shortly thereafter. For more information, contact: Dawn M. Bauman, CAE SVP, Government Affairs Community Associations Institute dbauman@caionline.org (703)

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