The Nevada Supreme Court has ruled that a note “super priority lien” held by a homeowners association can extinguish a first deed of trust on a property.
The Sept. 18 ruling is a victory for a group of real estate investors called SFR Investments Pool 1, which foreclosed on such a super priority note lien held by the Southern Highlands Community Association on a foreclosed home for $6,000. The investors argued in the case that the foreclosure wiped out a note debt of $885,000 on the property, which was held by U.S. Bank as a first deed of trust.
The court agreed with SFR Investments.
“With limited exceptions, this lien is prior to all other liens and encumbrances on the homeowner’s property, even a first deed of trust and note recorded before the dues became delinquent,” the majority said.
The holding by the court that the lien is a “true” super priority lien was supported by the full court.
In its brief filed with the Nevada Supreme Court, attorneys for the bank argued that if a lender cannot adequately protect its substantial residential loan investment, the lender will either cease lending in Nevada, or charge higher interest rates to protect itself against greater uncertainty of the borrower’s repayment of the loan.
“In addition, if the court finds SFR’s position persuasive, it would reward speculators purchasing valuable real estate properties for pennies on the dollar. Our state’s housing sector can ill-afford another speculator-generated shock,” the bank said in its brief.
Jonathan Friedrich, a member of the board of the Commission for Common-Interest Communities and Condominium Hotels, called the ruling a potential disaster for the residential real estate business in Southern Nevada.
“If a bank cannot protect its investment, then what bank or lending institution would ever lend money in this state?” he said. “It will hurt home builders and resales and be disastrous to our economy.”
The court majority wrote that U.S. Bank’s objection that it is unfair to allow a relatively nominal lien stemming from nine months of HOA dues to extinguish a first deed of trust overlooks the fact that the bank could have paid off the lien to avert the loss.
“The inequity U.S. Bank decries is thus of its own making … ” the majority said.
Subscribers to THE PAPER SOURCE JOURNAL knew about this from reading the October, 2014 issue. If you’re not a subscriber, you’re not keeping up with the latest news of the note industry. See
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Perhaps I am missing something…..
How is the homeowners association super priority lien any different for note investors than an unpaid property tax lien? Why should it be viewed any differently?
Just as for unpaid property taxes by a borrower, it is necessary for the bank (or note investor) to be prepared to protect their interest by paying the lien, in this case generated by unpaid homeowners dues – and then to recover it from the borrower, or otherwise declare a default on the borrower under the terms that require the borrower to defend the mortgage / deed of trust from any superior liens.
We buy notes in all 50 states, including those in homeowner associations in states – including NV.
It is not clear why this ruling changes the risks in a substantive way that should preclude investing in such loans in NV.
What I do not understand is why the lender, prior to the foreclosure action, did not simply pay off the SFR Investments lien?
I am assuming that Nevada law allows those with an equitable interest in the property have the right to pay off the lien, correct?
Thanks Bill and here is some additional information from a NV law firm that may partner with other law firms in a class action suit.
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Banks Ignoring Nevada Supreme Court Decision on Super Priority Liens
Oct 9, 2014 | Posted by John Wright | Banks Ignoring Nevada Super Priority Lien, Foreclosures Nevada, HOA Foreclosures, Home Owners Association, Las Vegas Foreclosures, Nevada Supreme Court Ruling, Super Priority Lien
Many Banks are ignoring the Nevada Supreme Court Decision on Super Priority Liens
We previously reported that on September 18, 2014 the Nevada Supreme Court ruled that homeowners’ associations’ Superpriority Liens are prior to first deeds of trust and the buyer of the property at a HOA foreclosure sale acquires title free and clear of any liens or encumbrances. However, despite the ruling by the highest court in Nevada, many banks are initiating foreclosure proceedings against properties sold at HOA auctions, asserting that their First Deed of Trust was superior to the HOA’s Super Priority Lien and was not extinguished.
Persons who acquired property through an HOA auction should have received a deed stating that the property was acquired “without equity or rights of redemption.” This means that the purchaser acquires legal title to the property that is free and clear of any encumbrances, including the bank’s first deed of trust. However, the HOA needs to have satisfied several other requirements under the statute. For example, the HOA must have provided notices to all persons who have recorded a request for a copy of the Notice of Default and Election to Sell. If the bank has recorded such a request then the HOA should have provided notice of the sale to the bank. This notice provides the bank with the option of satisfying the HOA’s superpriority lien in order to avoid having their First Deed of Trust extinguished under the statute.
If the HOA has satisfied all the statutory notice requirements, the bank will not be able to claim that its First Deed of Trust survived the HOA’s foreclosure sale, so long as the deed provided to the purchaser is in compliance with the statute.
How Can The Banks Be Stopped?
The banks are counting on purchasers of HOA foreclosure properties being unfamiliar with the law and being afraid to challenge the bank’s claims. They are counting on purchasers being unwilling to engage an attorney who knows how to fight for their legal rights. If you purchased a property at an HOA foreclosure sale and a bank or a mortgage company is threatening to or has initiated foreclosure proceedings on their First Deed of Trust there are steps that you can take to stop them. You must be proactive in protecting your rights. It will likely require some form of court intervention to stop the foreclosure proceeding. It is imperative that you seek the assistance of an experienced Las Vegas Attorney to assist you. Oftentimes, proving that the HOA satisfied all of the statutory notice requirements can only be accomplished through the issuance of a subpoena to the HOA and the party who conducted the foreclosure sale.
The Wright Law Group, P.C. has extensive experience in HOA foreclosure issues and is well equipped to assist you.
The Wright Law Group, P.C. is partnering with other law firms to investigate the possibility of bringing a class action law suit against the banks and other financial institutions who have wrongfully taken property under these or similar circumstances. If you purchased a property at an HOA foreclosure sale and a bank or other institution subsequently took the property through a foreclosure or other process, we want to hear from you.
Seems to me a $6000 payment is a small price to pay to protect a $885,000 debt. Perhaps the bank’s size, assets and arrogance clouded their judgment !?
“The banks are counting on purchasers of HOA foreclosure properties being unfamiliar with the law and being afraid to challenge the bank’s claims”
Kind of a silly position. Anyone sophisticated enough to even know about buying and foreclosing on HOA liens must be a pretty smart cookie and represented by good attorneys.