NATIONAL – “First” Deeds of Trust now Second in Line?
JDSUPRA BUSINESS ADVISOR: “First” Deeds of Trust now Second in Line?
…the Nevada Supreme Court upheld the foreclosure of a piece of property for $6,000, which satisfied the HOA lien and completely wiped out the $885,000 first mortgage/deed of trust properly held and recorded by U.S. Bank.
By Rick Jones
November 18, 2014
Recent decisions in Nevada and the District of Columbia have held that a homeowner or a condominium association’s (HOA) lien may extinguish an existing first deed of trust in the event of foreclosure. Most recently, in SFR Investments Pool 1, LLC v. U.S. Bank, N.A., the Nevada Supreme Court upheld the foreclosure of a piece of property for $6,000, which satisfied the HOA lien and completely wiped out the $885,000 first mortgage/deed of trust properly held and recorded by U.S. Bank. The HOA sold the property for little more than its lien. Someone got a windfall! How did this happen? Under the Nevada Common Interest Ownership Act, the HOA was required to give notice to the mortgage lender, and apparently it mailed a notice. The bank, which was then charged with knowledge of the foreclosure, could have paid off the HOA lien and avoided the loss of its security interest but apparently failed to notice the notice. As the Nevada Supreme Court said when the bank attempted to undo the foreclosure, the injustice the bank decried was “of its own making.”Really? We have not reviewed the factual record from the case below to discern the actual content of the notice, but my guess it didn’t scream “pants on fire” and was overlooked. One can only speculate that it’s pretty easy in the heavy notice traffic of a major servicing platform to miss what possibly appeared to be a mundane and routine communication. Moreover, in places like Nevada, where there is non-judicial foreclosure, the hammer falls quickly and even a well oiled servicing shop may not pick up the event before the deed is done. Read more: