DS News - U.S. Bank

66 In the wake of SFR and the derivative law of the case, Nevada witnessed a surge of quiet title actions aimed to ensure title was acquired free and clear of the senior mortgage. In response, the Federal Housing Finance Agency (FHFA) categorically withheld consent for all HOA lien foreclosures, contravening the Nevada Supreme Court's ruling in SFR. e FHFA contemporaneously filed a surfeit of federal district court complaints and counterclaims asserting HERA. As a result, Congress granted FHFA certain privileges and exemptions including a "property protection" exemption. Under this exemption, when acting as conservator, no property of FHFA is subject to levy, foreclosure, or sale without the consent of FHFA and no involuntary lien(s) may attach to any FHFA property. 12 U.S.C. 4617 (j)(3). is congressional gesture offered the FHFA bona fide protection from the superiority statute but left lenders vulnerable and fully exposed. THE SUPERPRIORITY STATUTE TODAY Six years after SFR bequeathed upon the Nevada HOAs a true super-priority lien with the capacity to extinguish a first deed of trust, lenders continue to challenge the constitutionality of the Nevada superpriority statute. In late fall 2020, in what may resonate beyond Nevada state lines, the United States Court of Appeals for the Ninth Circuit was asked to consider the federal constitutional question of whether the HOA superpriority "scheme" (as donned by the Court) either effectuates an uncompensated taking of property in violation of the Fifth Amendment or alternatively violates the Due Process Clause of the Fourteenth Amendment. e Ninth Circuit handily affirmed the district court's dismissal of the quiet title action commenced by first lien holder Wells Fargo Bank, N.A. against the purchaser of real property at a foreclosure sale. Effectively representing all lenders in opposition of NRS 116.3116, Wells Fargo sought a declaration that the foreclosure sale was invalid and that the bank's deed of trust continued as a valid encumbrance against the real property located in Las Vegas, alleging brazenly on appeal that the superpriority statute and authorized HOA foreclosure violated the lender's constitutional rights. FACTUAL BACKGROUND AND PROCEDURAL HISTORY In 2008, homeowners purchased a home within the Copper Creek HOA in Las Vegas and were subject to the covenants, conditions and restrictions, including an obligation to pay dues and other assessments to the HOA. e homeowners financed the purchase with a loan from Wells Fargo and to secure the loan, recorded a deed of trust in favor of Wells Fargo. In 2011, the homeowners defaulted on the loan and concurrently fell behind on their HOA dues, resulting in a lien for the delinquent assessments. ereafter, the HOA foreclosed on the property to satisfy its lien and in 2013, the Mahogany Meadows Avenue Trust (Mahogany Meadows) purchased the property at public auction thereby extinguishing Wells Fargo's deed of trust. Notably, Mahogany Meadows purchased the property for $5,332.00, an amount substantially less than the value of the property estimated at $200,000.00. Following the foreclosure, Wells Fargo initiated a quiet title action seeking a declaration that the foreclosure sale was invalid and that the lender's deed of trust survives as a valid encumbrance against the real property on the grounds that NRS 116.3116 violates the Takings Clause and the Due Process Clause of the U.S. Constitution. e district court dismissed Wells Fargo's complaint for failure to state a claim relying heavily on the Supreme Court of Nevada's decision in the 2017 action, Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage, a Division of Wells Fargo Bank, N.A., 388 P.3d 970, 975 (Nev. 2017) where the court concluded an HOA acting pursuant to NRS 116.3116 cannot be deemed a state actor nor did the Nevada Legislature deprive the lender of its constitutional rights by enacting the superpriority statute. ereafter, Wells Fargo unsuccessfully moved for reconsideration, arguing for the first time that because the borrower was an Feature By: Rosemarie C. Hebner and Eric Houser 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.

• Cover