In a September 2014 ruling, the Nevada Supreme Court held that a homeowners association’s (HOA) non-judicial foreclosure sale can extinguish a mortgage lender’s previously-recorded first deed of trust on a property if that foreclosure is to recover assessments categorized as “super priority” amounts (generally nine months of regular assessments, plus any amounts required for abatement) as set forth in Nevada Revised Statute (NRS) 116.3116. SFR Invest. Pool I, LLC v. U.S. Bank, N.A. et al., 334 P.3d 408 (Nev. Sept. 18, 2014). HOAs have conducted foreclosures of HOA assessment liens and sold properties at auction for a fraction of the amount owed to the lender – in some instances as low as $3,000. These sales were often made to third party purchasers or investors. The winning bidder at the foreclosure sales then frequently followed up with a quiet title action, claiming to own the property free and clear of all liens, including the lender’s previously-recorded first deed of trust on the property.
On May 28, 2015, new amendments to NRS 116.3116 were signed by Nevada Governor Brian Sandoval. The revised law, which takes effect October 1, 2015, attempts to clarify the super-priority statute and attempts to provide lenders much needed protection in the wake of the SFR decision. Until we see how the courts respond to the initiative, lenders may still face uncertainty on some issues. Some of the amendments to the statute include the following:
- Provides new notice protections for lienholders, including a requirement that the HOA mail to the first deed of trust holder the default and sale notices within 10 days of recording, as well as a requirement that the HOA record an affidavit indicating those notices were sent to the first lien holder;
- Provides a cap on the amount of fees and costs which may considered part of the “super priority” lien—significantly, the new revisions explicitly forbid the addition of any attorney’s fees and costs into the “super priority” amount;
- Requires that the HOA sale crier announce whether super priority lien has or has not been satisfied;
- Provides that if the first lienholder pays the super priority lien not later than five days before a prospective HOA sale, that the sale does not extinguish the first lien;
- Provides for a 60-day post-sale redemption period to the owner of the property and the first lienholder;
These new amendments only apply to HOA foreclosure sales that occur on or after October 1, 2015 and not to prior foreclosure sales.
Despite these amendments, lenders still need to proceed with caution in Nevada and act promptly to preserve their rights against an HOA claiming delinquent assessments.
Greenberg Traurig, LLP has been at the forefront of the fight on behalf of lenders in cases where HOA foreclosures have already occurred, and there are a number of bases on which lenders can defend a claim by an HOA or third party purchasers that an HOA lien extinguished a first priority deed of trust.