Legal Clarity: Is the HOA super-priority fight over? (opinion) | SierraSun.com

Legal Clarity: Is the HOA super-priority fight over? (opinion)

Cassell von Baeyer
Legal Clarity

During the economic downturn we saw many Homeowner's Associations ("HOA") pursue foreclosure against member homeowner's for failure to pay assessments. Nevada state law provides HOAs with a super priority lien right entitling HOAs to recover nine months of dues in the event of a foreclosure sale.

In September 2014, the Nevada Supreme Court in SFR Investments Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408, ruled that when an HOA forecloses on an assessment lien, that super priority lien right actually wipes out a mortgage lender because it is deemed a right that is senior to the mortgage loan.

This means that the purchaser at an HOA lien foreclosure sale could pick up a property for the amount of past due assessment (often only a few thousand dollars) and take the property free and clear of any mortgage lien.

For obvious reasons, lenders were not too happy about this interpretation of the law and in 2015, the Nevada legislature amended provisions of Chapter 116 (which governs HOAs and common interest communities) to allow lenders to "opt-in" to receive notice of HOA foreclosure sales.

Lenders receiving notice of HOA lien foreclosure sales could then bring the assessments current, avoid being wiped out by the sale and could then pursue their own foreclosure sale on the mortgage.

Since the SFR decision, a battle has raged in the courts regarding the nuances of that decision. On August 12, 2016, the United States Court of Appeals for the Ninth Circuit in Bourne Valley Court Trust v. Wells Fargo Bank, NA, definitively held that the Nevada "opt-in" statute facially violates a lender's constitutional due process rights under the Fourteenth Amendment to the Federal Constitution, and remanded the case for further proceeding consistent with that decision.

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It is interesting to note that the Ninth Circuit also found that long standing statutory language found in NRS Chapter 107 which applies notice requirements for defaults under a deed of trust to foreclosure notices of HOA liens, "would impermissibly render the express notice provisions of Chapter 116 entirely superfluous." Bourne Valley at P. 11.

The dissenting opinion vehemently disagreed with this application of what is knowns as the "surplusage cannon" (which provides a framework for statutory interpretation that, in essence, suggests that words do have meaning and they would not have been used in a statute if they were not intended).

The Ninth Circuit Bourne Valley decision follows several decisions by the Nevada Supreme Court that favor lenders in this epic battle over lien rights.

While the Bourne Valley decision my signal the beginning of the end of the battle, there is no doubt there is more to come, if not from the courts then perhaps from the Nevada legislature which will meet in 2017.

Cassell von Baeyer is an attorney/partner with Incline Law Group LLP in Incline Village. Please send legal topics you would like addressed to info@inclinelaw.com and visit us at inclinelaw.com.