DS News - U.S. Bank

64 Feature By: Rosemarie C. Hebner and Eric Houser Nevada's Homeowner's Associations (HOAs) have won again in their battle with mortgage lenders challenging Nevada's super-priority lien law, this time in the United States Court of Appeals Ninth Circuit. WHAT'S THE SUPERPRIORITY STATUTE? First enacted in 1991, Nevada's HOA lien priority statute, formally known as NRS 116.3116 and acrimoniously referred to as the "superpriority statute," is intended to provide HOAs with what was considered much needed muscle as a means of collecting delinquent assessments from offending homeowners. NRS 116.3116(1) bestows upon an HOA a statutory lien against a property for unpaid HOA assessments and further provides for a portion of these assessments to be superior to a senior mortgage. Simply put, aside from a few exceptions, if the HOA assessments go unpaid, an HOA has the authority to proceed with foreclosure of its lien, even if the HOA lien itself is subordinate in value to the mortgage or lender's lien. e assessments that HOAs levy are typically the hard costs incurred by the HOAs to provide requisite services to the homeowners within the private community, such as property taxes for the common areas as well as costs of maintaining the amenities held in common by owners of property within the development. When a homeowner abandons property or neglects to pay the HOA assessments as obligated, the HOAs are left at risk. In 2009, the Nevada Legislature amended the HOA superpriority statue by increasing the amount given priority over a senior mortgage to nine months of delinquent assessments. However, properties encumbered by Fannie Mae or Freddie Mac backed mortgages remain limited to six months of assessments. Until 2013 and 2015, the statute did not expressly require notice be given to the lender of the foreclosure nor expressly provide any right for the lender to obtain lien payoff. SURROUNDING CONTROVERSY In 2014, the Nevada Supreme Court, in what remains a controversial decision, affirmed the legislative intent of NRS 116.3116 and pointedly endorsed the dominion of the superpriority statue, holding that the foreclosure of an HOA's super-priority lien could lawfully extinguish a senior mortgage under the mandate of NRS 116.3116. SFR Investments Pool 1 v. U.S. Bank, 334 P.3d 408, 410 (Nev. 2014). SFR unequivocally decided: 1. an HOA has a true super-priority lien, not just a payment priority; and 2. the property foreclosure, whether judicial or nonjudicial, extinguishes a first deed of trust. Dissatisfied with the mortgagee's argument, the Nevada Supreme Court concluded that the lender could have either: 1. Paid-off the full lien to avert its loss of security and request the HOA reimburse the amount exceeding the super-priority lien or 2. paid the HOA assessments through an escrow account to avoid disbursing its own funds. 64 HOAs vs. Mortgage Lenders Court decisions in Nevada may have a national impact on the rights of mortgagors inside and out of the court.

• Cover