Howard Kim and Associates Wins Landmark Decision

CLICK HERE to download a copy of the Opinion

The case was between SFR Investments Pool 1, LLC (“SFR”) a Nevada company and U.S. Bank, N.A.

The owners of a house in Souther Highlands fell behind on their homeowners association (HOA) dues and mortgage. The owners eventually filed for bankruptcy, relinquished the property, and moved out, leaving the property vacant.

For four years, U.S. Bank made no attempt to pay the HOA even though it was aware its borrowers were not paying the dues.

The HOA used a standard, non-judicial foreclosure process and sold the house in 2012 at public auction to SFR.

Several months after the HOA auction, U.S. Bank scheduled its own foreclosure sale. SFR filed a lawsuit and asked the district court to stop the sale. The district court initially stopped the sale and then later dismissed the case stating that the deed of trust was not extinguished, causing SFR to appeal to the Nevada Supreme Court.

The Supreme Court sided with SFR, saying a super priority lien can and does extinguish the first deed of trust.

In 1991, Nevada adopted public policy that made HOAs the blueprint for future development and growth in the housing community.

SUMMARY OF DECISION:

  • All seven justices agree that NRS 116.2116(2) gives HOAs a true superpriority lien, not merely a “payment priority” an HOA can collect when the bank forecloses.
  • All seven justices agree that an HOA’s superpriority lien can be foreclosed.
    • The majority holds that a superpriority lien can be foreclosed nonjudicially.
    • The concurrence /dissent believes that a lawsuit should be required to wipe out a first deed of trust.
  • All seven justices agree that a bank’s first feed of trust is wiped out by an HOA’s foreclosure of its lien containing superpriority amounts.
  • All seven justices agree that a “relatively nonminal lien” can wipre out “a first deed of trust securing hundred of thousands of dollars of debt.”
  • All seven justices agree that NRS 116 trumps conflicting provisions in an HOA’s CC&Rs—superpriority cannot be waived
  • The majorrity explained that as a junior lienholder, the bank could have:
    • paid off the HOA lien to avert the loss of its deed of trust
    • established an escrow for HOA dues to avoid having to use its own funds
  • “The inequity [the bank] decries is thus of its own making[.]”
  • The majority opined that “nothing appears to have stopped [a bank] from determining the precise superpriority amount in advance of the sale or paying the entire amount and requesting a refund of the balance.”
  • “A trustee’s deed reciting compliance with the notice provisions of NRS 116.3116(2) through NRS 116.31168 ‘is conclusive’ as to the recitals ‘against the unit’s former owner, his or her heirs and assigns, and all other persons.”

    Click HERE for access to the Supreme Court Docket.

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