April 12, Assemblyman William Horne Chairman, Assembly Committee on Judiciary Nevada Legislature 401 S. Carson Street Carson City, NV 89701

Transcription

1 Law Office of Anita KH McFarland, LLC 871 Coronado Center Drive, Suite 200 Henderson, Nevada Phone: Fax: Neveda Bar #8118 Arizona Bar #21513 Assemblyman William Horne Chairman, Assembly Committee on Judiciary Nevada Legislature 401 S. Carson Street Carson City, NV RE: Support for A.B. 394 as Amended Dear Chairman Horner I ve been asked to provide testimony regarding some of the issues being addressed in the numerous homeowners association bills that are before you. I am currently a sole practitioner licensed in three states, but working primarily in Nevada. I have been involved in foreclosures of both deeds of trust, and of homeowner s association liens in Nevada for more than a decade, and I am in the unique position of having represented individual homeowners, HOA management companies, HOA collection companies, Freddie Mac, MGM Signature Towers, Chase, Bank of America, and an assortment of investors who purchase properties at the foreclosure auctions. I have also personally performed the work necessary to carry out the steps required to foreclosure an HOA lien on behalf of various homeowners associations. I m sure you are aware that a multitude of bills and revisions to NRS 116 have been proposed this session, and there is no more contentious subject right now that collection of homeowners association assessments. The current statutory scheme is in dire need of attention because it leaves loopholes and gaps that have given rise to an entire cottage industry who are profiting to by tens of millions of dollars for performance of a series of fairly simple clerical tasks. I would like to very briefly, review the statutorily required process for foreclosure of a homeowners assessment lien so that you and your committee understand what steps are being taken, and what an appropriate fee would be.

2 Page 2 First, most people, including members of HOA Boards, do not know that the HOA has a perpetual lien against the properties in their community WHICH NEVER GOES AWAY. Per NRS (4). The HOA s lien is created by recording the CCRs (NRS (4). Nothing further is required to perfect the lien So the lien itself is ALWAYS present, though the account balance associated with the lien fluctuates. If the account balance remains unpaid for some period of time, the HOA has the legal right to foreclose its lien and take the property in satisfaction of the lien. Should the HOA elect to foreclose its lien, it must undertake a process set forth in NRS All of the collection firms utilize computer databases to generate the documents required under NRS , and other documents related to the lien collection and foreclosure process. It may take minutes to put all of the information into the database, but then it only takes less than a minute to generate the various documents associated with the process. STEP ONE DELINQUENCY NOTICE Some collection companies pay a referral fee to the HOA s management company, for forwarding the file to them. This is also termed the advanced management company audit fee, and is paid to the management company that gives the file to the collection agent, This fee, encourages extremely aggressive movement of the files to the collection process, and is basically a kickback that is passed on to the homeowner by charging the assessment account. The Notice of Delinquent Assessment Lien is a NOTICE; it is NOT a separate lien. The lien never goes away, the account balance just changes. The Notice of Delinquent Assessment Lien is a one-page Notice that is typically generated in less than 30 minutes by a clerical employee that makes less than $15 per hour. The proposed fee for this notice is $ The Notice is NOT statutorily required to be recorded But the collection companies are recording these Notices, charging additional fees for doing so, and then charging additional fees for releasing the Notice. BB-2

3 Page 3 Additionally recording a Release of Lien is also a misnomer. This lien is never released the account associated with the lien is just brought current. The proposed charge for releasing the Notice (which is not required to be recorded in the first place) is $30. I would also like to point out that the Collection Firms frequently refuse to record a release of lien unless the new owner agrees to pay not only the amount that it owes, but also the amounts owed by the FORMER homeowner STEP TWO NOTICE OF DEFAULT The next step in furtherance of the HOA s foreclosure process is to record a Notice of Default and Election to Sell. They CANNOT record and mail this Notice until at least 30 days from the date of the mailing of the first Notice. However, most of these collection companies prepare the NOD far in advance, and charge $400 or more for doing so. They also order a TSG or a title search that costs an average of $400 adding an average of $800 to the lien account balance. Even though the HOA HAS NO INTENTION OF EVER FORECLOSING ON THE PROPERTY, THE HOA BOARDS ALLOW THEIR AGENTS TO CHARGE THESE FEES BECAUSE THE HOA IS NEVER BILLED FOR ANY OF THIS. Most Board members never stop to consider the ill-effect that this has on the community and its members. I have a client that is a past president of his HOA. He fell on hard times and his account was turned over to a collection company. The total amount owed for his assessments was $ which has now paid in full directly to his association. However the collection company is still hounding him for more than $2,000 in collection fees. These excessive fees hurt the struggling homeowner. Additionally, since the Government Sponsored Enterprises have accepted billions of taxpayer dollars to make good on their mortgage guarantees, IT IS OUR TAXPAYERS who are footing the bill for these outrageous collection fees. As an attorney who has handled REO files for mortgage companies and banks, I have frequently seen the collection company racing to record and NOD as soon as they receive a payoff demand from an escrow agency or a new owner which does nothing BB-3

4 Page 4 for the HOA, but enriches the collection company. HOAs typically don t ever want to foreclose their lien, as they would lose their right to collect super-priority amounts from the Investor/Bank; they would be responsible for taxes, payment of the first DOT, insurance, maintenance & upkeep, etc. STEP THREE NOTICE OF SALE The final step in the furtherance of foreclosure is the Notice of Sale. For the reasons outlined above, the HOAs almost NEVER proceed to this step, or if they do, the sale is ultimately cancelled. Another one page form document produced by a clerical employee. It must be mailed, posted, and published, and these costs are in addition to the collection fees themselves. Many companies are charging a Trustee s Fee even when a Notice of Sale is never prepared or recorded. Others are charging up to $1,500 for initiation of the final sale procedure EVEN THOUGH THEY ALMOST NEVER GO TO SALE. This is again, nothing more than fee building that the HOA s allow because the dues paying, voting members of the HOA are never the ones paying these extreme costs. FNMA and FHLMC pay their trustees $600 plus costs for foreclosing Deeds of Trust. This a reasonable flat fee for the work performed. The statutory processes for foreclosure of a Deed of Trust and an HOA Lien are virtually identical. There is NO reason for these companies to be charging 3 to 4 times as much to foreclose an HOA lien as it costs to foreclose a Deed of Trust. BB-4

5 Page 5 Boards have a fiduciary duty to seek competitive pricing for their collection services, and to ensure that unnecessary additional fees are not added to the accounts of their members. STEP FOUR DEED Because there is typically no equity in the property, HOA s are seldom ever actually going to sale or issuing a Foreclosure Deed. However, if they do, it is also nothing more than a database generated document that is signed and recorded. Now that we ve seen what the process actually entails, I would like to take a few minutes tell you about the abuses by the HOA collection companies. While the fees being charged by the HOA collection companies are extremely high in relation to the cost and value of work performed, this is not the worst problem that those Nevada homeowners have to deal with. There are some extremely ethical collection firms out there working in the HOA industry that are simply charging whatever the market will bear. Unfortunately, there are also HOA collection agents that are engaging in unscrupulous fee churning and deceptive trade practices. The HOA collection industry has proposed a plethora of bills this year. Their primary goal appears to be the inclusion of HOA collection fees and costs into the superpriority portion of the HOA s lien that survives the foreclosure of the first deed of trust. The collection company lobbyists will tell you that this is absolutely critical to the survival of the HOA s. In fact, nothing could be further from the truth. HOA collection companies do not invoice the HOAs. They wait to be paid by the property owner. Since the HOA is not paying the bill, they care little what the collection agent is charging the homeowner for the collection process. Over the years the collection agents have raised their fees dramatically, but the Boards do not object because they are not the ones paying these astronomical bills. BB-5

6 Page 6 As long as the persons who are engaging these collection agents are never the ones paying the bills, then the market will not regulate itself through normal competitive free-market channels. The HOA collection agents state that they much charge more for their foreclosures than the banks trustees because they must communicate with homeowners, set up payment plans, etc. which the bank s trustees do not do. This is simply not true because they are charging additional monthly fees for administering payment plans. HOA collection agents should be able to profitably foreclose on liens for the same rates that FNMA and FHLMC pay their trustee s, a total of $600 plus actual and necessary costs incurred. If collection fees and costs are included in Nevada s super-priority statue, it will violate FNMA and FHLMC underwriting guidelines and jeopardize lending in our state because our banks and government sponsored enterprises will be in second position behind a lien that can potentially be inflated to ten times its original amount. In closing, I would like to say that the revisions set forth in S.B. 195 are critical to containing a small group of profiteers who are gouging Nevada s homeowners for tens of millions of dollars by performing superfluous work at inflated prices. If the HOA collection industry is not contained, the health of home lending in Nevada will be jeopardized. Thank you very much for your time and consideration regarding this very important issue. Very truly yours, /s Anita KH McFarland, Esq. BB-6