Nevada HOA Lien Update Michelle A Mierzwa, Esq. Partner – Compliance Division Wright Finlay & Zak, LLP mmierzwa@wrightlegal.net The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
NRS 116.3116 NRS 116.3116 (2) – an HOA’s lien is “prior to all other liens and encumbrances on a unit” except for “(b) a first security interest on the unit recorded before the date on which the assessment sought to be enforced became delinquent…” However, the HOA lien is “prior to all security interests described in (b)… to the extent of the assessments for [HOA dues] … which would have become due in the absence of acceleration during the 9 months (6 months for Fannie or Freddie) immediately preceding institution of an action to enforce the lien…” The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
SFR Investments Pool 1 v. U.S. Bank, N.A., 130 Nev. Adv. Op. 75, 334 P.3d 408 (2014) On September 18, 2014, the Nevada Supreme Court issued a controversial decision that decided these two issues: The HOA has a true super-priority lien, instead of just a payment priority. The proper foreclosure of which, whether judicial or nonjudicial, will extinguish a first deed of trust. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
Policy Reasons Why The Court Decided That An HOA Lien Holds True Super-priority Status The Supreme Court concluded that the bank could easily have: paid off the full lien to avert its loss of security and request the HOA pay it back the amount exceeding the super-priority amount; or paid the assessments through an escrow account to avoid having to use its own money. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
Problems With The Supreme Court’s Conclusion The statute did not: expressly require notice be given to the lender (until October 1, 2015). expressly provide any right for the lender to obtain the lien payoff amount (until October 1, 2013). Identify if other items than assessments were part of the super- priority lien. require the HOA or its Trustee to state the super-priority and the sub- priority amounts (until October 1, 2015). require the HOA or its Trustee to accept the super-priority amount or release the lien (until October 1, 2015). require the HOA or its Trustee to accept any payment by the lender (until October 1, 2015). permit the lender to collect HOA dues as part of an escrow account (until October 1, 2013). The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
Issues Being Litigated After SFR SFR did not resolve many issues because the decision was on an appeal from an order granting a motion to dismiss. It remained for the district courts then to determine whether : The HOA Sale had in fact complied with the notice requirements of the Statute. The recitals of the Foreclosure Deed regarding notice are conclusive. Tender of the super-priority amount is sufficient to void sale. The Statute met due process requirements. The HOA Sale was commercially reasonable. Mortgage Savings Clauses in CC&Rs recorded before the Statute went into effect (1/1/1992) are valid. The decision should be applied retroactively for NOSs before decision. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
Shadow Wood v. NYCB, 132 Nev., Adv. Op. 5, 2016 Nev. LEXIS 5, *20 On Jan. 28, 2016, the Nevada Supreme Court issued a decision that seemed to answer some questions left open by SFR. The HOA and third party purchaser appealed an order granting summary judgment to the lender. Sale took place and district court entered summary judgment before SFR. Lender foreclosed before the HOA, so this was REO property. Lender knew sale had been scheduled and disputed lien amount, yet it did not attend sale, request arbitration to determine the amount owed, or seek to enjoin the sale, and did not tender full amount of lien in NOS. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any
Shadow Wood v. NYCB, 132 Nev., Adv. Op. 5, 2016 Nev. LEXIS 5, *20 The key legal points in this decision were: Recitals in Foreclosure Deed are not conclusive; courts can set aside defective foreclosure sale when appropriate despite NRS 116.31166. A showing of grossly inadequate price plus fraud, unfairness, or oppression can show commercially unreasonable sale. Purchase price less than 20% of value at time of sale may be. Conflicting lien payoff statements or including fees and costs not permitted under Statute, rising to “level of misrepresentations and nondisclosures that prevented [lender’s ] ability to cure the default” might support setting aside the sale. Proof of tender of full lien, or possibly just super-priority amount, which is rejected by HOA may be sufficient to set aside the sale. Lender obligated to pay 9 mos. assessments before + all after HOA sale. Court must look at “totality of the circumstances” to set aside sale. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any
What Amount Must Be Tendered To Extinguish The Super-priority Lien? SFR seemed to say that it’s only 9 months’ assessments; Shadow Wood said still an “open question.” Collection agencies argued that it includes assessments and collection fees, costs, etc. NRED Adv. Op. No. 13-01 – An association may collect as a part of the super- priority lien interest, authorized late fees or charges, charges for preparing any statements of unpaid assessments and “costs of collecting.” NAC 116.470 – caps fees at $1,950, allows cost of a trustee’s sale guarantee and other title costs, costs of recording, posting and publishing, sale, mailing, express delivery, skip trace, and certain attorneys fees. Collection agencies varied in what they accept and what they give in exchange for payment. New rules under SB 306, effective October 1, 2015. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
Lenders React To SFR Record Request for Notice so HOA must give notice before foreclosing. Request lien payoff and tender full amount of the lien. Tender super-priority portion of the lien. File suit to enjoin the HOA Sale if tender is not accepted and super-priority lien released. File suit against: Buyer to quiet title. HOA and its Trustee for wrongful foreclosure, breach of contract and negligence. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
McKnight Challenge To Suits By Lender Against HOA And Trustee In response to suits brought by lenders, the HOAs and their Trustees have filed motions to dismiss based on McKnight Family, LLP v. Adept Management Services, Inc., 129 Nev. Adv. Op. 64, 310 P.3d 55 (October 3, 2013), arguing NRS 38.310 requires the causes of action other than quiet title to first be sent to mandatory mediation or arbitration under the auspices of the Nevada Real Estate Division before a civil lawsuit can be filed. Courts split whether McKnight and NRS 38.310 apply. Lenders file NRED Complaints then file suit. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
Lenders React To SFR File suit against the borrower on the note as a “sold out junior.” Seek the excess proceeds from the Sale and walk. Settle with the buyer: Payment to buyer to relinquish its interest. Accept payment from buyer for waiver of DOT. Get HOA or its Trustee to settle with buyer and rescind Foreclosure Deed when Sale was bad. Challenge sale where borrower was in FMP in violation of NRS 116.31162(6) or in BK with no order for relief. The views expressed in this Presentation should not be relied on as legal advice. Please consult your own counsel before relying on any information provided in this Session.
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