On September 19, 2014, the Nevada Supreme Court in a 4 to 3 decision decided a very significant HOA Superpriority Lien case. The NV Sp. Ct. ruled that a non-judicial foreclosure of an HOA lien for unpaid assessments does in fact wipe out a first mortgage holder. The end result is that a buyer at an HOA foreclosure sale may take the property free and clear of the first loan deed of trust.
In SFR Investments Pool 1 v. US Bank, 130 Nev. Adv. Op. 75 (9/19/14), the Nevada Supreme Court reversed the District Court and found that (1) the superpriority lien for assessments (found in NRS 116.3116) is a true superpriority lien and has seniority even over a first deed of trust. As a result an HOA foreclosure sale will wipe out the lender’s interest as a junior lien, and (2) the statute authorizes the HOA to conduct a nonjudicial sale to foreclose its lien and does not require the HOA to file an action to judicially foreclose the lien.
The Supreme Court sent the case back to the District Court to resolve the case consistent with the Supreme Court’s opinion. That should result in the District Court quieting title in the investors and issuing an injunction preventing the foreclosure by the mortgage lender.
This is a huge victory for investors who buy at an HOA lien sale and pay a modest sum (perhaps as low as five to ten thousand dollars) at the HOA sale. It is a huge defeat for lenders – in this case USBank’s first loan of almost $900,000 was entirely wiped out by the HOA sale – and raises the public policy question of whether lenders will be willing to lend on HOA properties in Nevada.
We expect that this will be a significant issue when the legislature meets again in 2015.