HOA Foreclosure Statute ruled unconstitional

By Phillip M. Adleson, Esq., Adleson, Hess & Kelly

The facts in Bourne Valley Court Trust vs. Wells Fargo Bank (Aug. 12, 2016) were relatively simple.  Wells Fargo Bank held a first deed of trust on property in Nevada.   The property was part of a planned development with a homeowners association (HOA).  The property was foreclosed by the HOA for failure to pay HOA dues.  The property was sold to a third party purchaser whose successor filed a lawsuit asserting that the HOA foreclosure had wiped out the Wells Fargo Bank first deed of trust.  The federal district court upheld the Nevada statute, holding that the Wells Fargo first deed of trust was foreclosed out by the HOA lien foreclosure.  Wells Fargo Bank appealed.

In a 2-1 decision, a three-judge Ninth Circuit Court of Appeals panel noted that Nevada law requires an HOA to notify a mortgage lender that it intends to foreclose, but only if the lender has affirmatively requested notice (i.e., “Opt-In” notice).   The majority further observed in its decision that Nevada Revised Statutes (NRS), “section 116.3116(2)(b) ordinarily made a first deed of trust superior to a homeowners’ association lien.  However, amendments to section 116.3116(2) gave “super priority” to the portion of a homeowners’ association’s lien for dues owed in the 9 months immediately preceding an action to enforce the lien.”   The federal Court of Appeals’ majority decision held that Nevada’s opt-in notice provision resulting in the HOA lien having super-priority over an existing deed of trust constituted state action and violated the due process provision of the 14th amendment to the federal Constitution.

This significant case will be covered in depth at the UTA Conference  on Monday, November 7th at 2:30 pm.