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Nevada HOA Foreclosure Wipes Off the Mortgage

Homeowner Associations in Nevada strike again by foreclosing the 1st position mortgage. This is a real example of poor due diligence! Surprisingly, some of the large funds still don’t monitor for HOA liens and HOA foreclosures in Nevada. It is very dangerous to have no workflow through the servicer to identify issues early enough to cure in a state that can completely wipe off the mortgages through HOA foreclosure.
For an HOA in Nevada to foreclose, the HOA lien must be recorded in the county records to initiate the foreclosure.
Remember that when the HOA lien is released after the recording of the HOA foreclosure deed, it does not mean that the HOA foreclosure is voided. Instead, it just means that the HOA wants to clear the title for the new owner of the property that purchased it at the HOA sale.
Most of the time, the HOA foreclosure attorney sends out certified mail to all parties of interest to get the lien redeemed prior to the foreclosure sale. It’s a judicial responsibility for the servicer or note holder at the time of the notice to either redeem the lien, or notify the future buyers of the notice of foreclosure sale. In this particular case, the note holder ignored the foreclosure notice and sold the loan to the secondary market. Without realizing that the HOA would foreclose on the property, the buyer of the loan flipped the loans yet again, changing the servicer. The HOA typically gives interest holders 90 days to redeem the lien and avoid the HOA sale.

We have seen some HOA foreclosures go through the entire process in under a year. My rule of thumb is to proactively monitor properties subject to an HOA in Nevada at least every six months.

In fact, when the current note holder appealed the foreclosure, the court took the side of the HOA and confirmed that any and all interests of the lien holders, including the mortgage holder, were extinguished.

Texas and Massachusetts can also be affected by irreversible HOA foreclosures. The HOA declaration documents can state that the HOA lien supersedes the first mortgage holder and can foreclose in first position, wiping off all remaining interest holders except for real estate taxes.

My recommendation is to employ a 3rd party provider of lien services to capture open HOA liens (even those that are past the statute of limitations) for enforcement to double check that an HOA foreclosure didn’t happen. Accuracy is a key in our business, my friends.