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Sample Letter from Lender to HOA regarding Priority of HOA Assessments

Posted by: on Wed, Jan 30, 2013

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We have advised our client that in our opinion, based upon the applicable provisions of NRS 116.3116, NRS 116.310312, Advisory Opinion No. 13-01 of the Nevada Real Estate Division, dated December 12, 2012 (a copy of which is attached hereto), and various recent Nevada District Court opinions and decisions by the Eighth Judicial District Court Honorable Judges Gonzales, Denton, Scann, and Silver, that the Association or HOA is only entitled to a super priority lien in a capped amount that is equal to the sum of (i) nine times the Association’s monthly assessment amount to unit owners for common expenses based on the periodic budget which would have become due immediately preceding the institution of an action to enforce the lien, plus (ii) any external repair costs incurred by the Association pursuant to NRS 116.310312. Since the monthly statement dated December 31, 2012 specifies a monthly assessment amount of $145, we assume that this is the Association’s monthly assessment amount to unit owners for common expenses based on the periodic budget adopted by the association pursuant to NRS 116.3115. Nine times $145 equals $1,305, which appears to be the super priority amount which you can require a purchaser at my client’s foreclosure sale to pay after the property is foreclosed.

We do not find there are any external repair costs pursuant to NRS 116.310312. In short, it appears to us that all of the $10,666.24 amount set forth in the Account Summary, except for $1,305, pertains to assessments, fines, late charges, and possibly other expenses for which there is no super priority lien on the part of the Association. The Real Estate Division at page 14 of their Advisory Opinion No. 13-1 specifically commented that when the current super priority lien statute was enacted, the sponsoring assembly woman, Ellen Spiegel, stated “I carefully put this bill together to make sure it did not include any assessments for penalties, fines or late fees. The bill covers the basic monies the association uses to build its regular budgets.” The Real Estate Division then went on to state on page 14 of Advisory Opinion No. 13-1, in connection with the super priority amount of the Association’s lien, that “no portion of that amount would be for penalties, fines, or late fees and that it only covers the basic monies associations use to build their regular budgets. It does make sense that a lien superior to a first security interest would not include penalties, fines, and interest. To say that the super priority lien includes more than just 9 months of assessments allows several undesirable and unreasonable consequences.”

Moreover, local District Court Judge Abbi Silver in a decision entered on September 13, 2012, in a case entitled Peccole Ranch Community Association vs. Elsinore, LLC, Case No. A-12-658044-C (a copy of which is attached hereto), ruled that there are limits on the amount of the super priority lien, and stated on page 5 of her Order that “after the foreclosure by a First Security Interest holder of a unit located within a homeowners’ association, pursuant to NRS 116.3116(2), the monetary limit of a homeowners’ association’s Super Priority Lien is limited to a maximum amount equaling 9 times the homeowners’ association’s monthly assessment amount to unit owners for common expenses based on the periodic budget which would have become due immediately preceding the institution of an action to enforce the lien, plus external repair costs pursuant to NRS 116.310312.” The Court then denied super priority lien status to claims for interest, late fees, costs of collection, and legal fees. The Judge noted that her ruling was consistent with other local judges’ similar rulings in other similar cases, including Judges Gonzales, Denton, and Scann.

In light of the foregoing, on behalf of our client, we offer to pay the Association the sum of $1,305, as calculated above, for the last nine months for assessments for common expenses based on the periodic budget adopted by the Association pursuant to NRS 116.3115. We realize that you may attempt to collect any deficiencies directly from the homeowner; however, that does not affect or enhance your super priority rights against my client or the Property.

If you refuse to accept this offer, we will have no choice but to institute formal foreclosure proceedings and wipe out your lien, except to the extent of the aforementioned $1,305 super priority amount. If this is required, we will pursue all legal means to recover the extra expenses incurred in the foreclosure process from your Association.

We suggest that you review this matter carefully, and that you also review the above-referenced Advisory Opinion 13-01 from the Nevada Real Estate Division, dated December 12, 2012.

We will await your favorable response in hopes that this matter can be put to rest at the earliest possible time. If you have any questions concerning the foregoing, please do not hesitate to contact the undersigned.

Sincerely,

ALBRIGHT, STODDARD, WARNICK & ALBRIGHT

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on personal injury accidents. Call us at 702-384-7111.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.