Nevada Supreme Court
The Nevada Supreme Court (4-3 vote, SFR Investments Pool 1 LLC v. U.S. Bank, N.A.) has ruled that a nonjudicial foreclosure sale of an HOA lien extinguishes a first deed of trust. HOAs can foreclose on homes ahead of first-mortgage providers. This puts thousands of first liens at risk.
U.S. Bank argued that a judicial foreclosure action was required in order for a superpriority lien to be created and to be superior to a first deed of trust. However the majority ruled that a nonjudicial foreclosure sale of an HOA lien extinguishes a first deed of trust. “This is a tremendous wake-up call for the industry,” said Matt Martin, Chairman of MMREM and CEO of its HOA unit, MMREM HOA Risk Mitigation, as quoted in MortgageOrb.com. “Super-lien states pose a great risk to lenders, servicers and investors in many parts of the country.”
Key to the majority’s decision was the argument that ‘the Legislature’s use of the term “action” indicates that a superpriority lienholder must file a judicial foreclosure complaint.’