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A Strange City

Las Vegas is a strange place to build a house. And it’s not just because swimming pools and grassy lawns make for weird additions to a desert. Most houses built in the city during the housing boom were constructed in planned subdivisions governed by homeowners associations (HOA’s). The associations are responsible for maintaining parks, playgrounds, pools and other amenities—work that is usually done by city governments. Today roughly half of all homes in Las Vegas are part of such communities, Uffelman says.

When the housing boom went bust in 2007 and 2008, homeowners associations experienced a double whammy. First, many homes were left vacant, depressing home values.

Second, many homeowners stopped paying their association dues. Associations were forced to reduce maintenance costs. It’s not uncommon to find entire subdivisions where the grass is knee-high because the associations can only afford to mow communal spaces once a month, Stone says.

“Many associations are really hurting,” says Gail Burks, president of the Nevada Fair Housing Center. “They depend on these fees.”

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A Strange Law

In most states, when a house goes into foreclosure the HOA is out of luck. Any fees the homeowner failed to pay before the foreclosure are simply wiped away, along with any other debts associated with the house.

In Nevada, the rules are different. Partly because the state has so many houses in HOA communities, state law gives HOA’s a “super-priority” lien, which means debts to an HOA are not wiped clean by a foreclosure. Instead, the associations are able to collect up to nine months’ worth of unpaid dues from the new owners.

“Everybody agrees that the homeowners’ associations should be paid,” Adams says.

A Simple Disagreement

But homeowners associations don’t collect their own back dues. Instead, they contract with debt collection firms to do it for them. That costs money. Local custom holds that the HOA’s don’t pay anything for the collection service. Rather, collection companies make all their money from fees they charge to homeowners.

It’s not uncommon for homeowners facing financial difficulty to go years without paying their association dues. A firm might spend thousands of dollars trying to collect on a long-term debt like that, says Steven Parker, president of RMI Inc., a collection firm.

That’s why the super-priority lien must include back dues as well as collection fees, the collectors say. The two are inextricably linked.

“You can say we shouldn’t charge collection fees. Fine,” Parker says. “Well then how do you expect the associations to collect them? It just doesn’t make any sense.”

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But collecting such fees is illegal, investors say, since the law makes no mention of them. Many investment companies have bought hundreds of houses each. Paying collection fees and HOA dues combined could cost some investors millions of dollars just to get a clear title and re-sell the homes.  Such fees are “egregious, unscrupulous and unlawful” says Puoy Premsrirut, a Las Vegas lawyer and real estate investor who is heavily involved in the fight. It’s a “scheme over years perpetrated by NAS to defraud Nevada homeowners out of millions of dollars in unlawful collection fees,” Premsrirut says.

And because they can’t resell the houses until all liens are cleared, the investors liken collection fees to a form of extortion.

“We can’t sell the house until it has a clear title, and the collection agents are using that to force us to make these illegal payments,” Adams says.“That could scare lots of investors out of the market completely. And then there won’t be anybody left to buy these houses, fix them up, and try to find new owners for them. Where would the associations be then?”

In the Ring: Who’s Right? »

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