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.
Additionally, the Court looked to NRS Chapter 116, which gives an HOA a lien on its homeowners’ residences “for any construction penalty that is imposed against the unit’s owner . . . any assessment levied against that unit or any fines imposed against the unit’s owner from the time the construction penalty, assessment or fine becomes due.” In addition, NRS 116.3116(2) elevates the priority of the HOA’s lien over other types of liens in certain instances. Particularly, NRS 116.3116(2) “splits” an HOA lien into two pieces – a super priority and a subpriority piece. SFR, 334 P.3d at 411. The super priority piece is superior to a first deed of trust and includes the last 9 months of unpaid HOA dues and maintenance as well as nuisance-abatement charges. All other aspects of the lien are subpriority.
After determining that portions of an HOA’s lien had priority over other types of liens, the Nevada Supreme Court then addressed whether an HOA lien was a true super priority lien. The Court looked to NRS Chapter 116 to answer in the affirmative: “To ‘foreclose [a] lien by sale’ under NRS 116.31162(1) encompasses an HOA’s conducting a nonjudicial foreclosure sale.” (citing NRS 116.3116(1); NRS 116.31162(1); and NRS 116.075.) Similarly, the Court explained that the Nevada Real Estate Division of the Department of Business and Industry (NRED) was tasked with administering NRS Chapter 116. In turn, the Court visited NRED’s Advisory Opinion No. 1301, which addressed whether NRS 116.3116(2) required a civil action by an HOA to foreclose the super priority piece of its lien. NRED answered in the negative. Rather, “taking action” under NRS 116.31162 could include initiation of a nonjudicial foreclosure.
If you find yourself involved in a real estate dispute involving priority liens, consult a licensed Nevada attorney who has experience and can guide you through the process.
By Geoffrey Hawkins, founding partner, Hawkins Melendrez