NEVADA – HOAs, Super Priority Liens, and Foreclosures Life After SFR Investments v. US Bank
NEVADABUSINESS.COM: HOAs, Super Priority Liens, and Foreclosures Life After SFR Investments v. US Bank
By Geoffrey Hawkins – Comments
November 1, 2015
Recently, the Nevada Supreme Court tackled two critical issues: First, whether a homeowners’ association (“HOA”) is a super priority lien on a property for up to 9 months of unpaid HOA dues; and second, whether such lien can be foreclosed upon nonjudicially. These issues were decided in the affirmative in SFR Investments Pool 1 v. US Bank, 334 P.3d 408 (2014).
In SFR, former homeowners of a property located in the common-interest community of Southern Highlands had become delinquent on their HOA dues and defaulted on their obligations to US Bank. SFR bought the subject property at the HOA’s trustee’s sale, which took place on September 5, 2012, and thereafter recorded a trustee’s deed. Meanwhile, a trustee’s sale was set for December 19, 2012 on US Bank’s deed of trust. However, days before US Bank’s trustee’s sale, SFR filed an action to quiet title and enjoin US Bank’s sale. The Eighth Judicial District Court denied SFR’s Motion for Preliminary Injunction, holding that an HOA must proceed judicially to validly foreclose its super priority lien.
Upon appeal, the Nevada Supreme Court looked at the legislative history of NRS Chapter 116 and explained that NRS Chapter 116 was a creature of the Uniform Common Interest Ownership Act of 1982 (“UCIOA”). SFR, 334 P.3d at 410. In so doing, the Nevada Supreme Court gave great credence to the comments to the Uniform Common Interest Ownership Act (UCIOA) but also compared the text of NRS Chapter 116 with the UCIOA. Notably, the Court looked to the comments of the UCIOA, which “liken[ed] the HOA lien to ‘other inchoate liens such as real estate taxes and mechanics liens.’” The Court further highlighted that the comments indicated an HOA’s “sources of revenues are usually limited to common assessments” and that an HOA’s ability to foreclose on the unpaid dues portion of its lien are essential. Read more: