New law looks at HOA collection costs

EDITOR’S NOTE: This is the last column in a three-part series looking at how laws passed in this summer’s state legislative session will affect local homeowner’s associations.

Here is a look at how association laws passed by the 78th legislative session will affect Nevada communities. If you missed any of the previous articles, you can obtain copies by sending a request to holland744o@gmail.com.

n SB 306 — Effective Oct. 1. One section of SB 306 was already addressed in a previous column in this series. That looked at the Division of Financial Institutions’ website where lenders must provide contact information.

This was a major bill pertaining to collections, and it was heavily debated throughout the session along with other “companion” bills pertaining to the same topics. The new law resolved one issue that has been an ongoing and costly major lawsuit against associations (commonly known as the Higher Ground cases) that looked at whether associations had the right to recovery certain collection costs in addition to the nine months of assessments. This is known as the Super Priority Lien.

Most associations probably have or will be receiving from their community management companies a new collection policy, which will be voted upon as part of the association’s governing documents. The new law resolves this issue by providing for the recovery of certain collection costs in addition to the nine months of assessments. The amount of costs to enforce an association’s lien must not exceed the actual cost incurred by the association and must not exceed the following state mandated caps on collection costs: 1. For a demand or intent to lien letter, $150; 2. For a notice of delinquent assessment, $325; 3. For an intent to record a notice of default letter, $90; 4. For a notice of default, $400; and 5. For a trustee’s sale guaranty, $400. For more information pertaining to the costs associated with the collection process, review your new collection policy and have your collection company address the HOA board and membership.

Another issue that was addressed that had been raised many times was whether the association or its community management company had to be licensed as a collection agency. The new law provides that an association, a director, an officer, an employee, a unit owner of the association acting under the authority of NRS 116 or the association’s governing documents, community manager, while engaged in the management of the association, are not required to be licensed as a collection agency and is not required to hire or to contract with a collection agency before recording a notice of default and election to sell per NRS 116.31162.

Another major change to the collection laws was the inclusion of the right of redemption. The unit owner who has lost his or her home through an association foreclosure sale may redeem their property at any time within 60 days after the sale under certain conditions, such as paying back the purchase price plus 1 percent more for each month to whoever bought the property from the association. Other costs would also need to be paid in order for the homeowner to redeem his or her property. If no redemption is made within 60 days after the date of the sale, the purchaser of the home would receive a deed without any warranty which would convey to the purchaser the title of the unit. The law requires that a copy of the deed be delivered to the Ombudsman Office within 30 days after the deed is delivered to the purchaser.

At this point, it is unknown whether a title company would take the risk to issue title insurance or require the purchaser to file a quiet title action in District Court. There were other changes pertaining to the timing of the notices, what needs to be included in the notices and who needs to receive them.

n AB 125 — The construction defect law. There are times when a legislative body wants to address the excesses of existing laws that the Legislature, in essence, creates excesses in its own efforts to have a fairer balance of the law. AB 125 for all practical purposes killed the rights of a homeowner to seek damages due to construction defects. No one will deny that there were problems created by the previous laws, but the solutions to those problems really were not addressed in AB 125. Here are some of the major changes:

It will be more difficult to prove damage and injury. In order to prove that there is a construction defect, you need to show that there is damage and or injury. Violations of codes and ordinances and work not being completed in a good and workman like manner have been removed from the law. In essence, you would need to a fire in your home to prove that a fire wall was defective. The notice to the contractors must identify in specific details the defect, damage and injury and the exact location of each such defect, damage and injury.

The costs to hire experts, as well as legal costs, have been shifted back to the homeowner as the collection of legal fees have been removed. Associations can no longer represent the homeowners.

The statute of limitations is now six years regardless of the discovery of latent defects.

— Barbara Holland is a certified property manager, broker and supervisory certified association manager. Questions may be sent holland744o@gmail.com