Attorneys for investors in Nevada foreclosed homes have filed yet another massive lawsuit challenging homeowner association assessments and collection costs.
The latest suit was filed secretly in April 2011 in federal court in Las Vegas and it was unsealed on Wednesday.
In the suit, investors’ attorneys Puoy Premsrirut and James Adams represent the United States government with their suit filed under the False Claims Act. It was initially filed secretly so the government could review it to see if it wanted to participate in the action.
Under the False Claims Act, citizens can sue on behalf of the government when they become aware of alleged wrongdoing causing harm to the government. They can then share any damages collected with the government.
In this case, the U.S. Justice Department specifically chose not to intervene in the suit and it chose not to seek dismissal of the suit.
That means the government is consenting to Premsrirut and Adams prosecuting it on their own in the name of the United States with the understanding the government must be consulted should anyone try to dismiss the suit and that the government can later intervene in the matter if it desires.
Adams and Premsrirut regularly sue homeowner associations and collection agencies in disputes over how much money in accumulated HOA assessments and collection costs
investors in foreclosed homes must pay.
The attorneys insist that under Nevada law in foreclosure situations, the assessments and costs that can be levied against delinquent properties are limited to six or nine months of HOA assessments depending on the timing of the delinquency.
HOAs and collection agencies disagree.
For instance, in a January suit against the Mountain’s Edge HOA, the investors said the HOA demanded that they pay $1,911 to obtain a clear title for a home they had purchased out of foreclosure. That's because of costs that accumulated under the prior owner and while the property was in foreclosure.
The investors said that under the Mountain’s Edge CC&Rs (covenants, conditions and restrictions), the most they were obligated to pay the HOA was six months’ of HOA due assessments, or $150.
The HOA and collection industries dispute these arguments, saying an HOA's ''Super Priority Lien'' against foreclosed homes — a lien superior to the first mortgage — includes not only the six or nine months of assessments, but interest, late fees and the costs of collecting against the lien.
The HOAs have been slammed by foreclosures and they say they need all the revenue they can get to maintain community common areas and services.
Judges and arbitrators have issued conflicting rulings on the issue, with an arbitrator for the state Real Estate Division on March 28 siding with the HOAs and collection industries and against Adams and Premsrirut.
That ruling came in a massive class-action complaint they filed in May 2011 naming more than 500 HOAs around the state.
All sides expect the Nevada Supreme Court to ultimately decide whether Nevada law limits the Super Priority Lien to six or nine months of assessments; or whether the law allows interest and collection costs on top of that.
Premsrirut and Adams, in the meantime, in the federal False Claims Act lawsuit unsealed Wednesday, sued not just hundreds of Nevada HOAs and numerous collection agencies but a host of other players in the real estate finance industry.
The defendants, who haven’t yet answered the lawsuit, include mortgage lenders and loan servicers such as Bank of America and Wells Fargo Bank.
Adams and Premsrirut complain in the suit that the government was defrauded by the defendants when — in the case of certain foreclosures — government-controlled lending giants Fannie Mae and Freddie Mac paid inflated fees and assessments demanded by HOAs and collection agencies.
The attorneys also say the loan servicers named in the lawsuit, in dealing with Fannie Mae and Freddie Mac on certain mortgages, were supposed to pay HOA assessments, late fees, fines, penalties and collection costs — but regularly failed to do so, leaving Fannie Mae and Freddie Mac stuck with the bill.
The attorneys also claim that in situations where HUD owns or obtains properties in homeowner association communities, the HOAs and their collection agencies have hit HUD with fraudulent liens covering ''sham'' collection costs.
The suit seeks unspecified damages for what the attorneys call thousands of false claims made against the government by the defendants.