SB 186 bad for Nevada HOAs; could cause lawsuits

Senate Bill 186 will expose Nevada community associations to lawsuits over foreclosures. It will also cause an increase in association assessments and create needless paper waste.

Foreclosure lawsuits

Almost all Nevada community associations lost their insurance coverage for foreclosures after the superpriority litigation issues that occurred over the past decade. Due to last-minute changes to SB 186, uninsured community associations will be exposed to foreclosure litigation claims and class actions, which means that associations’ litigation costs and judgments will be passed on to association homeowners through assessments.

How did this happen and why? SB 186 was changed to eliminate the ability of a community association to purchase a unit by credit bid at the association’s foreclosure sale. No association ever wants to purchase a unit, but the ability to do so as part of the non-judicial foreclosure process is necessary in order to lawfully process a non-judicial foreclosure.

The Federal Fair Debt Collection Practices Act, 15 U.S.C.A. § 1692f, provides, in relevant part, as follows:

A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if—

(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;

(B) there is no present intention to take possession of the property; or

An association would not have a present right to possession through an enforceable security interest as required by subsection (A) where it lacks the right to take possession through a credit bid purchase. If an association cannot purchase a unit by credit bid then it would not be possible for an association to have the intent to take possession of the property through nonjudicial foreclosure as required by subsection (B). Similarly, pursuant to subsection (C) an association would not lawfully be able to default a property (i.e., threatening to take a nonjudicial action to effect dispossession of the property) because the property would be exempt from dispossession due to the association’s preclusion from purchasing by credit bid.

Increased assessments and paper waste

For the past decade, Nevada community associations have saved money and trees by providing notices through electronic mail as allowed by Nevada Revised Statute 116.31068 when an owner provides an e-mail address for notices. SB 186 takes away this discretion and instead forces associations to utilize physical mail and e-mail simultaneously regardless of a unit owner’s desired method for notice. In the aggregate, this change may cost Nevadans in HOAs in excess of $10 million dollars a year in paper and mailing costs, not to mention the waste of paper that will occur. These are costs associations have not had to include in the budget for more than a decade, so expect this change will result in an assessment increase in 2022 if this bill is not stopped.

Our last chance to stop this from happening is for the SB 186 to be vetoed.

Please contact Gov. Steve Sisolak and his chief of staff (michellewhite@gov.nv.gov) to urge that he save Nevadans from being subjected to avoidable liability and needless costs by vetoing SB 186.

Barbara Holland is a certified property manager and holds the supervisory community manager certificate with the state of Nevada. She is an author and educator on real estate management. Questions may be sent to holland744o@gmail.com.