NRS 116 Does Not Conflict With FHA Mortgages
NEVADA SUPREME COURT FINDS THAT NRS 116 DOES NOT CONFLICT WITH MORTGAGES INSURED BY THE FEDERAL HOUSING ADMINISTRATION (FHA)
We previously reported on the recent July 27, 2017, recent decision from the Nevada Supreme Court where the Court held the legal reasoning in SFR Investments applies retroactively to all foreclosures since NRS 116’s inception. That case was argued and won by John Henry Wright, Esq. of The Wright Law Group, P.C. and secured another win for HOA investors in Nevada. However, on the same day the Nevada Supreme Court also released a related and equally important decision in the case of Kenneth Renfroe v. Lakeview Loan Servicing LLC . 133 Nev., Advanced Opinion 50 (July 27, 2017).
Win For Nevada HOA Investors
In Renfroe , the Court concluded NRS 116.3116 is not preempted by federal law when the first deed of trust on the property is insured through the Federal Housing Administration (FHA). This is an important win for Nevada HOA investors because it removes one more defense that Banks liked to raise against Investors when those Investors acquired properties that had FHA insured mortgages. Thus, this holding chipped away a huge block of legal defense for the banks while simultaneously pouring a stronger foundation for a HOA investors seeking quiet title against the banks.
To fully understand what that means, we first need to dissect the legal reasoning of Renfroe . The Supremacy Clause of the United States Constitution makes the U.S. Constitution and, by extension federal law, the “supreme law of the land.” Moreover, the United States Supreme Court held in Altria Grp., Inc. V. Good , that “state laws that conflict with federal law[s] are without effect.” 555 U.S. 70, 76 (2008). This gives rise to the Preemption Doctrine which simply means that when a federal law preempts state law, the federal law will prevail. This was the Bank’s argument in Renfroe – that an HOA investor could not succeed in a quiet title action that pertained an FHA insured mortgage because the FHA scheme preempted state law and, thus, made NRS 116 void because of that preemption.
Courts Recognize Two Different Types Of Preemption
Courts have recognized two different types of preemption: 1) express preemption and, 2) implied preemption. Express preemption exists when Congress preempts state law by explicitly stating that Congress intends to do so. This takes the form of a federal statute or other act of Congress and is contained in the text of same. Implied preemption is a bit more nuanced and comes in two flavors: 1) field preemption or, 2) conflict preemption . Under the doctrine of field preemption, a state statute is preempted “when congressional enactments so thoroughly occupy a legislative field, or touch a field in which the federal interest is so dominant, that Congress effectively leaves no room for states to regulate conduct in that field.” Lakeview p .3. While under the doctrine of conflict preemption, a state law is preempted when that law directly conflicts with federal law by way of interfering with that federal law’s purpose and intended effects. In Renfroe , since neither express preemption nor field preemption applied, the Bank’s argued conflict preemption existed between NRS 116 and the FHA Insurance program’s intended purpose and objectives.
The FHA insurance program “allows the Department of Housing and Urban Development (HUD) to insure home loans extended by private lenders to enable low to moderate income buyers to purchase a home.” Lakeview, p. 4. The FHA program is intended to promulgate HUD’s strong policy in favor of encouraging private investment in housing. In Lakeview, the Nevada Supreme Court noted the fact that HUD requires bank’s to take any actions necessary that are needed to protect HUD’s interest in the property against foreclosure actions brought by an HOA . This notably includes paying delinquent HOA fees on behalf of the current owner so the Bank may retain marketable title. This marketable title is needed by the banks to collect on the insurance of an FHA insured mortgage. “If a bank fails to protect its interest and loses title to the property at issue, any contract of insurance between HUD and the mortgagee automatically terminates.” Lakeview, p. 7.
Superpriority Status On HOA Liens
This reasoning mirrors two federal court cases that use the same logic and ultimately led the Nevada Supreme Court to hold that “no direct conflict exists between NRS 116.3116 and the regulatory provisions of the FHA insurance program … because HUD/FHA internal regulations anticipate and provide for a state statutory framework conferring superpriority status on HOA liens and expect a mortgagee to protect its interest accordingly. Lakeview, p. 8,10.
John Henry Wright, Esq., the founder of The Wright Law Group, P.C. is well versed in HOA foreclosure litigation in Nevada. If you need to quiet title against a bank or are served with a complaint to quiet title filed by a bank, call The Wright Law Group, P.C. today at 702.405.0001.