Investors Sue Hundreds of Las Vegas Neighborhood Associations

Two Las Vegas real estate investors filed a lawsuit recently against more than 500 neighborhood associations, claiming the groups charge illegal collection fees to people who own foreclosed homes.

The massive lawsuit is the latest, and the most spectacular, development in an expensive battle over foreclosed houses in Las Vegas that already has resulted in a score of competing bills in the Nevada state legislature, fights before various state agencies, and dozens of lawsuits, including some in which the participants accuse each other of abusing the legal system.

On one side, real estate investors who are buying up hundreds of homes in Las Vegas accuse homeowners associations of hiring debt collectors to charge fees that are illegal under Nevada’s unique real estate laws. Bank of America filed a similar lawsuit against associations and collections companies in February.

“They’re breaking the law, and they know it,” James Adams, an attorney and one of the investors involved in the fight, told us in April.

On the other side, the homeowner associations say they need to charge fees to continue maintaining their neighborhoods. To do that they must hire collections companies, which charge their own fee to stay in business.

“They’re filing all these lawsuits, and it’s all nonsense,” David Stone, president of Nevada Association Services, a collection company that serves only homeowners associations, told us in April. “These people just want to make millions of dollars while everybody else suffers.”

In the lawsuit, Adams and fellow investor Puoy Premsrirut accuse the homeowners associations of violating the Nevada law that guarantees the association fees will always be paid, even after a house is foreclosed upon, according to a story by the Las Vegas Sun. (In most states, the association would simply be out of luck).

The law says nothing about collection fees, however. Some houses spend years in foreclosure, wracking up thousands of dollars in such fees. A ruling by the Nevada Financial Institutions Division last year limited how much the collection companies can gather to nine months’ worth of assessments, including collection costs. Collection agencies are appealing that decision.

Meanwhile, investors like Adams and Premsrirut argue that even nine months’ of collection fees is illegal. Their lawsuit accuses the HOAs of “making improper, inaccurate and/or excessive demands,” according to the Sun.

If the investors win, that could spell big trouble for people who live in subdivisions governed by homeowner associations, Stone says. It may leave their neighborhoods with empty houses, plus streets and parks in decline, even as the remaining homeowners pay increasing fees to maintain what’s left.

“These speculators want to come in here and make huge profits, and forget what happens in the neighborhood,” Stone says. “They don’t care.”

[Resource: Not sure where you stand credit wise? Get your Free Credit Report Card to find out.]

Image: Thierry, via Flickr