23 Mar Update on the Unfolding Drama of HOA Foreclosures
Nevada law, in NRS 116.3316 – .3368, grants a homeowners’ association (HOA) a true superpriority lien for certain unpaid assessments and allows a properly conducted HOA foreclosure to remove certain other encumbrances, which can include the first deed of trust securing a mortgage in some cases. In the recent Saticoy Bay ruling, the Nevada Supreme Court considered a challenge to the constitutionality of these statutes. In that ruling, the Nevada Supreme Court considered the version of the law which was in effect when the foreclosure took place before the 2013 and 2015 amendments.
In the Saticoy Bay case, the homeowner’s defaulted on both their mortgage and on their HOA dues. The HOA conducted a nonjudicial foreclosure and sold the property to Saticoy Bay LLC. Wells Fargo, the holder of the first deed of trust, also filed a notice of default and election to sell. Saticoy Bay filed a complaint with the district court to prevent Wells Fargo from foreclosing and seeking a declaration that the liens and encumbrances held by Wells Fargo had been removed. On Wells Fargo’s motion, the district court held that the statutes violated Wells Fargo’s due process rights. Saticoy Bay appealed.
The Nevada Supreme Court, on appeal, held that the superpriority lien statutes do not violate due process rights. Relying mostly on the United States Supreme Court’s decision in Lugar, the Nevada Supreme Court found that there was no state action. They quoted Lugar in saying “[a]ction by a private party pursuant to [a] statute, without something more, [is] not sufficient to justify a characterization of that party as a ‘state actor.” Since there was no applicable state action, the due process clause was not implicated.
This decision follows an earlier decision were these statutes survived an as-applied challenge under a due process argument before the Nevada Supreme Court. SFR Invs. Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408, 418 (Nev., 2014). The decision in Saticoy Bay is in tension with a decision from the Ninth Circuit holding that these statutes do violate the due process clause. Bourne Valley Court Tr. V. Wells Fargo Bank, N.A., 832 F.3d 1154, 1160 (9th Cir. 2016).
Parties in both Saticoy Bay and Bourne Valley have stated that they are appealing to the United States Supreme Court. Some, though not all, courts have stayed actions in HOA foreclosure cases while waiting to see if the United States Supreme Court will take up these appeals. See e.g. Wilmington Tr. V. Premier One Holdings, Inc., No: 2:16-cv-02733-JAD-NJK, 2017 U.S. Dist. LEXIS 29658, at *2 (D. Nev. Mar. 1, 2017).
Naturally, state courts are bound by the holdings of the Nevada Supreme Court while the Federal District Courts are bound by the holdings of the Ninth Circuit. Unless and until this tension is resolved, which court hears a case may have a significant impact on the best way to approach a matter in an HOA foreclosure case as well as the likely final result.