Fannie Mae 1 – HOAs 0

  • July 15, 2015

A battle has been brewing in Nevada over the rights of lienholders (mortgage lenders) after a homeowner’s association (HOA) forecloses on an assessment lien. The battle resulted from our somewhat confusing statutes which provide an HOA with a super priority lien for assessments.  However, interpreting the extent of the super priority lien can be challenging. As noted by the Nevada District Court, the statute creates an “exception within an exception”.  And, that is the only ingredient necessary for litigation to ensue.

Back in September of 2014, the Nevada Supreme Court ruled in the SFR Case that a foreclosure sale by a homeowner’s association for unpaid assessments extinguished a mortgage lender’s interest as if it were a junior lien. In response to the SFR Case, the 2015 Nevada Legislature amended certain provisions of Chapter 116 in SB 306 by changing required notices and other provisions of the law.  The new provisions may still allow an HOA foreclosure to wipe out a lender, but only if the new requirements are met.

While this drama has been playing out at the state level, there have been a number of cases movingcases moving their way through the U.S. District Courts for the District of Nevada, seeking to challenge the state ruling. Specifically, Fannie Mae and Freddie Mac have challenged the ruling on the basis of federal preemption under the Supremacy Clause. If you are not familiar with preemption, the simplified definition is: fed laws trump state laws.

In September of 2008, the Feds placed the very troubled Freddie Mac and Fannie Mae into a Fannie Mae  conservatorship (under the conservatorship of the Federal Housing Finance  Agency “FHFA”) for the purpose of reorganizing and rehabilitating Freddie and  Fannie.  Congress granted FHFA, via Federal  statutes, broad privileges and  exemptions to carry out its duties as the  Conservator. These exemptions  included statutory protections that provide that “[n]o property of the Agency shall be subject to levy, attachment,  garnishment, foreclosure, or sale without the consent of the Agency, nor shall  any involuntary lien attach to the property of the Agency.” 12 U.S.C. § 4617(j)(3).

Within the last several weeks, decisions and rulings have begun filtering out of the Nevada District Courts. The general gist of those decisions is that an HOA foreclosure cannot extinguish a Fannie or Freddie lien without the consent of the conservator, FHFA. After discussion with the very brilliant Leslie Bryan Hart of Fennemore Craig in Reno, who argued for one of these recent rulings (Skylights LLC v Byron et al.), I understand that we may not be done with this issue yet. She believes that Skylight decision will likely to go to the 9th Circuit Court of Appeals. I will update you when it does.