Beware the Las Vegas HOA Rat Trap!

Countless numbers of investors around the world have been eyeballing plummeting home prices in Las Vegas. As the economy tanked, HOA prices in some areas of the country have been falling at precipitous rates.

You may have heard it from friends: “I’m gonna buy a condo or house in Las Vegas. You just can’t beat those prices.” But there’s a reason to be cautious. Nevada Homeowner Associations are collecting an increasing number of lawsuits, actions which will ultimately cost homeowners tens, even hundreds of millions of dollars.

Two Las Vegas attorneys have filed a lawsuit against more than 500 Nevada HOAs, supposedly on behalf of taxpayers and the federal government. The attorneys allege that the Homeowner Associations have been illegally charging the government too much money on foreclosure insurance claims. More than 23,000 homes have been foreclosed upon since 2008. The lawsuit claims the HOAs charged Fannie Mae and Freddie Mac for unpaid HOA dues, dues the mortgage giants weren’t really required to pay.

That’s just one of many lawsuits now accumulating against struggling HOAs. Here’s the rub: some of those wide-eyed investors who moved in to buy up those cheap homes are now potentially liable for any judgments levied against the homeowner associations. As attorneys’ fees, penalties, interest and judgments pile up, those cheap homes are going to begin to look impossibly expensive. But once those buyers are caught in the HOA rat trap, they won’t be able to waltz out. Lawyers will go after every penny those homeowners are worth, inside or outside of Nevada, even if those homeowners had nothing to do with the original wrongdoing or malfeasance that led to the original lawsuit. Fundamental fairness, is just not part of the equation.

And Nevada isn’t the only danger zone. In Florida, a 1.2 million dollar beach home recently sold for just $10,000. But as lawsuits pile up, legal judgments may take the price of that home a whole lot higher. The same for tens of thousands of condos and homes in HOAs in Florida, Texas, Missisippi, the Carolinas, Pennsylvania and many other states.

HOAs claim they protect and preserve property values. The exact opposite is turning out to be the more relevant truth. They don’t. The claim is a scam. But there’s always a new flood of young homeowners willing to believe the myth, and become the next victims.

There’s actually a postive aspect to this story. It’s a wonderful time to be a lawyer!

Ward Lucas
Author of
Neighbors At War: The Creepy Case Against Your Homeowners Association

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2 Comments

Filed under HOA, HOA Horror Stories, Homeowners Association, Las Vegas HOA

2 responses to “Beware the Las Vegas HOA Rat Trap!

  1. IC_deLight

    Another nice article!
    I’d like to make a comment on the remark that “HOAs claim they protect and preserve property values”. Such claims come primarily from Community Associations Institute – a trade-lobby group for HOA vendors. Such claims also come from owners incapable of thinking or doing anything more than parroting CAI’s 30 year old bogus marketing propaganda.

    As you have noted, CAI’s claims are without merit. Notably, CAI has no empirical evidence to back up the propaganda they’ve been spouting for decades. CAI’s claims are a “Leninism” – repeat a lie often enough and people accept it as truth. CAI’s math is flawed at best and always fails to take into account the carrying costs, litigation vortex, and risk of unmarketability for all that is realized whenever a CAI vendor provokes litigation in the subdivision. Aside from the flawed and unsupported economic arguments, CAI’s premise that economic value is the sole or primary consideration simply flies in the face of the fundamental purposes for which people seek housing.

    A policy of anything is justified under the pretext of aesthetics (see CAI’s #1 public policy) is rewarding for the vendors ($$$) and ego-challenged board members* but not for the residents or property owners.

    The pursuit of the elimination of ugliness in the name of “community” is a pretty thin veil. Such sentiments are historically associated with extremely oppressive and destructive “-isms” such as racism, nationalism, and religious and other intolerances. Just as the Third Reich pursued genocide to eliminate people deemed “ugly” or “dirty” by the regime, so does the HOA regime seek to eliminate owners – at least those who refuse to pay whatever the management company and HOA attorney demand for conduct or conditions deemed aesthetically displeasing. The conduct of these vendors tends to create serious health issues and hardships on familial relationships and you can bet that such conduct has even greater negative economic consequences for employers whose employees are distracted by the conduct of these industry predators. The outcome for the owner that refuses to pay fealty to the management company and HOA attorney is that the owner is subjected to years of harassment, litigation, and often divested of their own home. CAI thinks this is a great model for “communities” because such a model is lucrative for CAI’s members – not the homeowners, residents, families, employers, or anyone else.

    *in an effort to attract such individuals, CAI refers to them as “community leaders” when they are merely board members of the HOA corporation.

  2. IC_deLight

    Another point: You said “The attorneys allege that the Homeowner Associations have been illegally charging the government too much money on foreclosure insurance claims. More than 23,000 homes have been foreclosed upon since 2008. The lawsuit claims the HOAs charged Fannie Mae and Freddie Mac for unpaid HOA dues, dues the mortgage giants weren’t really required to pay.”

    I suspect that there is a very strong chance that the HOA corporations did not actually get this money. Fannie Mae and Freddie Mac are not dealing directly with the HOAs. Instead the government sponsored entities (GSEs) are operating through servicers and communicating with the agents of the HOAs, i.e., the HOA management companies.

    There is undoubtedly money disappearing at the mortgage-servicer-to-HOA-management-company interface such that the money never makes it to the HOA. As bad as the mortgage servicers are, the HOA management companies are worse. You are dealing with unfaithful agents.

    The HOA board often has little idea what the management company is up to and will never see the claims made by the management company to the mortgage servicers regarding amounts allegedly owed. The servicer pays the “agent”. The money doesn’t necessarily make it from the agent to the agent’s principal.

    At least one interstate management company organization utilized bank signature cards that purported to allow the signatories (management company employees) to endorse and negotiate checks for cash without depositing them in the HOA account. Seems like an environment that facilitates embezzlement rather than a legitimate business practice.

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