System for liens irritates agency
A federal financial regulatory agency has complained to Gov. Brian Sandoval's office about pending legislation that sets up a regulatory framework for liens imposed by collection agencies on foreclosed houses, the Las Vegas Review-Journal has learned.
The legislation deals with the practice of homeowner associations hiring collection agencies to recover delinquent association dues. The collection agencies tack on thousands of dollars in fees for their collection efforts and those fees must be paid before a house can be sold.
The collection agency fees are now and would continue to be treated as "superpriority" liens against houses under the pending bill. That gives the homeowner groups and the collection agencies the right to collect their fees before even first-mortgage lenders are paid.
The issue has been the subject of regulations, court orders and now legislation sponsored by state Sen. Allison Copening, D-Las Vegas.
The Federal Housing Finance Agency, which regulates mortgage finance companies Fannie Mae and Freddie Mac, wrote an April 26 letter complaining that Copening's bill could have "unintended consequences." The letter was addressed to Lucas Foletta, the governor's general counsel, and signed by federal agency General Counsel Alfred Pollard.
Pollard criticized several features of the bill, including an alleged $1,950 cap on collection agency fees, which he said "is not a true limitation."
Fannie and Freddie Mac have paid up to six months of unpaid assessments to homeowner associations for a repossessed home but not collection agency and attorneys' fees, Pollard said.
In an email, Copening disagreed.
"Freddie and Fannie have continued to pay up to the nine months of delinquent assessments (from associations) at foreclosure, including collection and other fees," she said.
"If Freddie and Fannie suddenly decided to pay only up to six months of delinquent assessments at foreclosure, then our current state laws allow them this right," Copening said.
Copening defended the bill, calling it "far better and stronger than what is in current regulations."
Rutt Premsrirut, an opponent and real estate investor, said the bill could cause Fannie Mae and Freddie Mac to stop buying residential mortgage loans originated in Nevada.
He estimated that the two government-sponsored enterprises buy two-thirds of the home loans in Nevada, partly because other investors have withdrawn from the residential mortgage market.
Pollard's letter doesn't mention the prospect of Fannie Mae and Freddie Mac refusing to buy Nevada home loans. However, he said, "The measure would represent a significant change to existing law and practice and could have unintended consequences in the current market environment."
The bill, Pollard noted, allows for "reasonable" attorney fees and collection fees to be included in superpriority liens.
"Experience shows that, in general, attorney's fees and collection costs are much higher than the amount of delinquent assessments," he said.
The bill would transfer the costs to Freddie Mac and Fannie Mae and to home-loan servicing companies, he said.
Chris Yergensen, senior vice president for RMI Management and its collection agency subsidiary, Red Rock Financial Services, disagreed with Pollard.
Yergensen said Copening's bill clarifies the law, rather than creating a new legal regime for collection agency fees.
The superpriority lien dates back to a 1992 law and was addressed in a 2006 District Court decision, Yergensen said.
It's unclear how much the letter will influence lawmakers.
"I think (the letter is) important to legislators that haven't sold out to the homeowner association industry," Premsrirut said.
Premsrirut, a frequent contributor to Democrats, said Republicans and some Democrats oppose Copening's bill. However, the Democratic leadership backs Copening's bill, he said.
The governor's press secretary, Mary-Sarah Kinner, said the Sandoval administration has not taken a position on the bill.
Contact reporter John G. Edwards at
jedwards@reviewjournal.com or 702-383-0420.
