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» VISIT US ONLINE @ DSNEWS.COM 89 the deficiency if the unit owner does not. Under the provisions of the proposed bill, the mortgagee (after receiving timely notice) would have until five days before the foreclosure sale to cure the HOA dues deficiency themselves to avoid possibly losing hundreds of thousands of dollars when the HOA extinguishes the first mortgage. In his testimony, Pollard covered the remaining sections of SB 306, which call for the notice to be published in a "public place" such as a newspaper or a county website, and provide that if a payment is made to the HOA for the amount of the dues deficiency no later than five days before the foreclosure sale, then the HOA cannot legally extinguish the first lien. Pollard called this a "prudent approach" in his testimony. One case central to last year's Nevada Supreme Court decision involves a house sold in Las Vegas in 2007 with a mortgage loan for $885,000 originated by Bank of America. e owner defaulted on the loan a year later and Southern Highlands Community Association foreclosed on the property. e association sold the house at an auction in September 2012 to SFR Investments Pool 1 for $6,000—the amount the homeowner owed in delinquent HOA dues. When Bank of America tried to schedule its own foreclosure auction on the house the following December, SFR Investments made a filing to stop Bank of America's foreclosure auction, claiming that the mortgage had been extinguished when SFR bought the house in September In order to protect Fannie Mae's and Freddie Mac's property rights, FHFA intervened in two Nevada cases in which an HOA extinguished a mortgage last year. In December, FHFA released a statement warning organizations that label mortgage loans with super- priority lien status that such loans will not push mortgages backed by Fannie Mae and Freddie Mac into the secondary position. e warning was aimed mainly at energy retrofit financing programs and HOAs that attach super-priority lien status to mortgages because of the risk they pose to taxpayers while Fannie and Freddie are under FHFA's conservatorship. "Extinguishing property rights is no inconsequential matter," Pollard said in his testimony. "FHFA, which operates under federal law addressing such matters, must consider this as Fannie Mae and Freddie Mac review not only the legal issues involved, but as well the underwriting standards that apply in states that maintain such potential extraordinary remedies. FHFA has an obligation to protect Fannie Mae's and Freddie Mac's rights. By way of summary, FHFA does find that most of the provisions of SB 306 improve the situation for lenders and secondary market participants in Nevada and support common interest communities, while we continue to have concerns with other sections of the existing law and practices under that law." FROM THE BENCH Will Senate Bill 306 Ease Lenders' Pain From the SFR v. US Bank Decision? No, but it will provide safeguards against future loses. Senate Bill 306 is in direct response to Nevada's super-lien priority debacle, which culminated in the well- chronicled SFR decision on September 18, 2014. For the better part of 20 years before the SFR decision, lenders, loan servicers, HOAs and others believed that the foreclosure of an HOA lien would have no impact on an otherwise first priority deed of trust. In 2011, with HOAs facing increased delinquencies and traditional deed of trust holders straddled with vague and often conflicting new foreclosure laws, HOAs began to more aggressively take their liens for unpaid dues to foreclosure sale. ese sales created a cottage industry of investors buying properties at the HOA foreclosure sales, often for pennies on the dollar. Slowly, the purchasers at the HOA sales started claiming that the HOA foreclosure wiped out the senior deed of trust and that they held title free and clear of all liens. At first, the mortgage industry collectively said, "No way!" and most state and federal district court judges agreed. at was, of course, until the Nevada Supreme Court decided SFR, holding that a properly conducted judicial or nonjudicial foreclosure of an HOA lien did, in fact, eliminate an otherwise first priority deed of trust. e mortgage servicing industry in Nevada went into a tailspin. In the ashes of the SFR decision, the mortgage industry searched for legal, legislative and practical solutions. For starters, mortgage servicers began recording Requests for Notice under NRS 116.31163, NRS 116.61168 and NRS 107.090. ese requests required the HOAs to furnish written notice of the foreclosure, giving mortgage servicers time to protect their deeds of trust. Meanwhile, lawsuits from all sides flooded the courts to determine, among other things, whether the HOA's foreclosure was valid, what liens remained on the property (if any) and whether the HOA was liable for the investors' loss. Against the backdrop of the battle in the courts on past HOA sales, both the HOA and mortgage industries searched for a legislative solution to better define the HOA lien and foreclosure process. SB 306 is the product of those efforts. For starters, SB 306 is not retroactive and will have no effect on HOAs sales occurring prior to its effective date. But, if passed, it will provide significant protections to lienholders and mortgage servicers going forward. Below is a list of the key proposed amendments and their corresponding section: Right of Redemption: From the mortgage industry's perspective, this is probably the most important amendment. Section 6 of SB 306 proposes to amend NRS 116.61166 to provide a right of redemption to the foreclosed out owner and "any holder of a recorded security interest". Specifically, within 60 days following an HOA foreclosure sale, any lienholder may redeem the property for the HOA sale price plus 1% interest, HOA dues paid by the purchaser post-sale, certain specified costs of improvement and any senior liens (for example, if a second mortgage holder wanted to redeem, it would have to also pay the amount owed the first mortgage holder). The percentage of borrowers in Nevada who were underwater on their mortgage as of the end of January 2015, highest percentage in the nation. Florida was second at 15.1 percent. Source: Black Knight Financial Services STAT INSIGHT 16.4%

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