Date of ruling 9/18/2014

HOA’s Super Priority Lien Extinguishes First Deed of Trust!

The Nevada Supreme Court today ruled that NRS116.3116 gives a homeowners’ association (HOA) a Super-priority lien on an individual homeowner’s property that is prior to all other liens and encumbrances, including a first deed of trust, and that the buyer of the property acquires title free and clear of any liens or encumbrances.

Background

Southern Highlands Community Association ( the” HOA”) recorded its Declaration of Covenants, Conditions & Restrictions (CC&Rs) in 2000. U.S. Bank (the “Bank”) recorded its First Deed of Trust in 2007. By 2010, the homeowners had fallen behind on the HOA assessments and defaulted on the note to the Bank. Both the HOA and the Bank initiated foreclosure proceedings.

SFR purchased the property at a trustee’s sale on September 5, 2012 and received a deed reciting compliance with all applicable notice requirements. When SFR filed an action to quiet title to the property, the bank opposed SFR claiming that the First Deed of Trust was superior to the HOA’s lien and survived the foreclosure sale.

Arguments and Supreme Courts Ruling

SFR argued that a Trustee’s Deed reciting compliance with the notice provisions is conclusive as to the recitals against the property’s former owner, his or her heirs and assigns, and all other persons. Title to the property is vested in the purchaser without equity or right of redemption, meaning that the title to the property vested with SFR free and clear of the bank’s first deed of trust.

The Bank argued that the statute simply creates a payment priority as between the HOA and the beneficiary of the first deed of trust and that the dues owed to the HOA do not acquire super-priority status until the bank forecloses on the first deed of trust, at which point the foreclosure-sale buyer would have to pay off the HOA lien in order to obtain a clear title.

The Supreme Court stated that the Statute supports the argument that the HOA lien is “prior” or superior to a first deed of trust and does not mention payment priorities as the bank suggested. The court reasoned that the drafters of the statute intended the HOA lien to be superior to the first deed of trust so that the banks would pay the past due assessment rather than have their lien extinguished.

The court equated the HOA super-priority lien to a real estate tax lien that would extinguish the first deed of trust the same as a tax lien.  The court stated that the bank could have paid off the HOA assessment to avoid the loss of its security or it could have established an escrow for the HOA assessments.

The bank attempted to argue that the non-judicial foreclosure process violated its due process rights. However, the court ruled that the HOA may foreclose on its lien in a non-judicial foreclosure proceeding, subject to the special notice requirements and protections set forth in the statutes.

Conclusion

The ruling was a good day for HOA’s, investors and the community because it will allow the standing inventory to start moving and will permit property values to increase. This ruling should attract more buyers at auctions, which will lead to higher sales prices.

It is anticipated that banks will continue their attempts to thwart the clear meaning of the statutes and the implications of this court ruling. Therefore, it is imperative that you seek the assistance of an experienced Las Vegas Attorney to assist you. The Wright Law Group, P.C. has more than 20 years experience and is well equipped to assist you. Please call us at 702-405-0001 to schedule a consultation.

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