Posted on March 11, 2015 by J. Mahe
This is an issue that has been heavily debated in Nevada among lawyers for several years. According to NRS Chapter 116 a homeowner’s association (“HOA”) lien for unpaid assessments receives super priority status for 9 months of the unpaid assessments. At the same time many lawyers believed it simply inequitable for an HOA assessment lien, which is often valued at only several thousand dollars, to have the ability to expunge a Deed of Trust securing the primary mortgage on real property which is often valued at several hundred thousand dollars. Because of this discrepancy many hours have been spent engaged in debates between counsel for the HOA and counsel for the bank as to who actually owns the property after foreclosure.
In response to this heavily debated topic the Nevada Supreme Court recently issued an opinion addressing exactly this question in SFR Investments Pool 1, LLC v. U.S. Bank, 130 Nev. Adv. Op. 35 (September 18, 2014). In that case, the Court completed a detailed review of the provisions of NRS chapter 116, specifically NRS 116.3116 which addresses the priority of an HOA lien for unpaid assessments. The Court found that NRS 116.3112 was designed to create a superiority lien for 9 months of unpaid assessments and a subpriority lien for the remainder of the assessments owed. Based upon this analysis the Court held, “if the superpriority piece is a true priority lien then it is senior to the first deed of trust. As such, it can be foreclosed and its foreclosure will extinguish the first deed of trust.” Id. The Court further addressed the equities of allowing a nominal HOA assessment lien to extinguish a much larger loan secured by a deed of trust. In response to the alleged inequity caused by allowing the HOA assessment lien to be a superpriority lien the Court noted that the holder of the Deed of Trust could simply have paid off the nominal HOA assessment lien rather than allowing the HOA assessment lien to be foreclosed. Had the holder of the Deed of Trust paid off the nominal HOA assessment lien the entire issue of priority would have been avoided and the Deed of Trust would not have been expunged. Accordingly, the Court found that the inequity asserted was actually caused by the holder of the Deed of Trust.
Because of the recent decision by the Nevada Supreme Court in SFR Investments Pool 1, LLC v. U.S. Bank, 130 Nev. Adv. Op. 35 (September 18, 2014) it is now very clear that in Nevada an HOA lien for unpaid assessments will expunge a Deed of Trust which would otherwise have priority status. With this issue now resolved there are several interesting questions that will be answered with time. Will HOA lien foreclosures now net much higher dollar amounts? Will Deed of Trust holders be more attentive to the payment status of assessments upon the property they are recorded upon? Will banks be less willing to loan funds in Nevada on properties which are subject to HOAs?
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