NBA Litigation Monitoring
by David O'Mara
On September 18, 2014, the Nevada Supreme Court found in SFR Investment Pool 1 v. U.S. Bank that the Homeowner’s Association (“HOA”) lien statute, NRS 116.3116, provides an HOA with “a true superpriority lien,” and the proper foreclosure of such a lien will extinguish a first deed of trust. The Supreme Court’s decision has definitely negatively affected lenders in Nevada. However, the Supreme Court left many issues unresolved when it remanded the matter back to the district court and lenders continue to argue that the HOA lien statute is unconstitutional.
The Nevada Bankers Association continues to monitor litigation that would impact our member and we are aware of three actions that have resulted
in favorable rulings regarding the HOA lien issue, the first of which came only days after the Nevada Supreme Court’s decision in SFR Investment.
In Washington & Sandhill Homeowners Association v. Bank of America, N.A., et. al., (2:13-cv-01845-GMN), the federal district court was presented with the issue of whether an HOA foreclosure is barred when the property has a mortgage that is insured under the FHA insurance program. Judge Navarro concluded that even though an HOA would generally be able to conduct a foreclosure pursuant to Nevada law, such a foreclosure would “operate to impede or condition the implementation of federal policies and programs” and therefore, “must yield under the supremacy clause of the Constitution to the interest of the federal government.” Judge Navarro found that “state laws cannot operate to undermine the federal agency’s ability to obtain title after foreclosure and resell the property.”
In Saticoy Bay LLC, Series 7342 Tanglewood Park v. SRMOF II 2012-1 Trust, et. al (2:13-CV-1199 JCM), Judge Mahan echoed Judge Navarro’s decision in Washington & Sandhill finding that an HOA foreclosure is invalid and cannot extinguish a federally-insured loan. “Foreclosure on federal property is prohibited where it interferes with the statutory mission of a federal agency.” Judge Mahan found that “[a]llowing an HOA foreclosure to wipe out a first deed of trust on a federally-insured property thus interferes with the purposes of the FHA insurance program” because it “hinders HUD’s ability to recoup funds from insured properties.”
In Octavio Cana-Martinez v. HSBC Bank USA, et. al (A-13-692027-C) HSBC Bank USA filed a motion for summary judgment in the Eighth Judicial District Court arguing that the HOA lien statute does not satisfy constitutional due process principles. In rendering her decision, Judge Kathleen Delaney found, that “[t]he Statue violates the Due Process Clauses of the Fifth and Fourteenth Amendments of the United States Constitution because its ‘opt-in’ notice provisions do not mandate that reasonable and affirmative steps be taken to give actual notice to lenders and older holders or recorded security interests prior to a deprivation of their property rights. Because the Statute does not require the foreclosing party to take reasonable steps to ensure that actual notice is provided to interested parties who are reasonably ascertainable (unless the interested party first requests notice) it does not comport with long standing principles of constitutional due process.” The district court also found that “the reference to NRS 107.090 does not salvage the federal or state constitutionality of the Statute because Plaintiff’s construction of NRS 107.090 as mandating to lenders before foreclosure would render superfluous the express ‘opt-in’ notice provisions contained in NRS 116.3116, in violation of rules of statutory construction.” An appeal of this decision to the Nevada Supreme Court is likely.
The NBA continues to monitor various litigation that would affect our members and other lenders doing business in Nevada but we need your help. If you are involved in ligation where the Court’s decision will impact other lenders, please forward any decision and/or pending motions to David O’Mara at or the NBA at . Together, we can share the most recent decisions to our members and their counsel.
SFR Investment Pool 1 v. U.S. Bank, 130 Nev. Adv. Op. 75, 334 P.3d 408.
In My Global Village, LLC, v. Federal National Mortgage Association (2:15-cv-00211-RCJ), Federal Court Judge Jones rejected the HOA’s argument that the federal court does not have subject matter jurisdiction to determine Fannie Mae’s counterclaims for declaratory relief that the HOA foreclosure cannot extinguish its interest in the Deed of Trust, to quiet title to the property, and in the alternative, for unjust enrichment.
Rust v. Johnson, 597 F.2d 174, 179 (9th Cir. 1979).
United States v. Lewis Cnty., 175 F.3d 671, 678 (9th Cir. 1999)(holding that the state could not foreclose on federal Farm Service Agency property for non-payment of taxes).