What changes were brought about to the HOA foreclosure sale landscape by the passage of SB 306 in Nevada?
SB 306 contained a number of important revisions to Nevada’s super-priority lien statute that will provide protection to first lien holders for any HOA lien foreclosure sale noticed for sale after October 1, 2015. Chief among the revisions, the new revised super-priority statute requires an HOA or its agent to provide specific notice of the HOA lien sale to a first lien holder. The prior version of Nevada’s super-priority statute did not mandate that notice be provided to a first lien holder – rather, a first lien holder was required to “opt-in” and request notice (this “opt-in” notice issue forms the basis of recent holdings by at least four Nevada state court judges that Nevada’s super-priority lien statute is facially unconstitutional).
Further, the new notice requirement mandates that the notice by the HOA or its agent provide the first lien holder with the specific nine-month super-priority amount owed to satisfy the super-priority portion of the HOA lien – the only portion of the HOA lien that can potentially divest a first-lien holder’s priority. It is important to keep in mind that during the HOA lien foreclosure sale bonanza over the past five years in Nevada, many servicers for first lien holders attempted to obtain from the HOAs or their agents the nine-month super-priority amount prior to the sales – offering to pay such amount – but in most instances the HOAs or their agents flatly refused to provide such information, and in some instances accepted such payment by a servicer yet still foreclosed the HOA lien. This new provision requiring the nine-month super-priority amount to be provided to a first-lien holder is a significant step in the right direction. The new revised statute also allows a first lien holder a sixty-day right of redemption following an HOA sale to redeem the property.
Judge Navarro ruled in June that the Housing and Economic Recovery Act preempted the state law regarding super-priority lien status, preventing HOAs from foreclosing on GSE-backed loans in cases where one of the GSEs is the recorded beneficiary of the deed of trust at the time of the HOA's foreclosure sale. How does the July 20 ruling affect the ruling in June?
Judge Navarro’s June 24, 2015, ruling in Skylights LLC v. Byron (Case No. 2:15-cv-00043-GMN-VCF) held that HERA preempted Nevada state-law to the extent that an HOA foreclosed on property for which a GSE was the record holder of the security interest prior to the HOA foreclosure sale taking place. Judge Navarro’s most recent decisions on July 20, 2015, applied that ruling to a much more common scenario, where a GSE owns the mortgage, but is not the recorded beneficiary of the deed of trust, at the time the HOA sale occurs.
What is the effect of Judge Navarro's ruling on both HOAs and on lenders or other mortgagees?
Judge Navarro’s ruling is significant. It confirms that thousands of first lien interests that were subject to an HOA sale where Fannie Mae or Freddie Mac owned the mortgage at issue cannot be wiped out.
Do you think other judges in the district court will rule differently from Judge Navarro?
On Monday July 27, 2015, U.S. District Court Judge Robert Jones followed the reasoning of Judge Navarro in Skyline and granted summary judgment in favor of Fannie Mae and FHFA, holding that an HOA foreclosure sale did not divest Fannie Mae’s deed of trust on the property. See My Global Village, LLC v. Federal National Mortgage Association, 2:15-cv-00211 (U.S. District Court, Nevada). As of July 28, 2015, no other judges have ruled on this issue.
What is the next step? Do you see this issue reaching the Ninth Circuit Court of Appeals, and maybe ultimately the Supreme Court?
To the extent the losing parties appeal the decisions of Judge Navarro or Judge Jones, it will be up to the Ninth Circuit Court of Appeals to decide the issue of whether HERA preempts state law with respect to super-priority liens in the HOA context. The United States Supreme Court’s review is entirely discretionary and they accept only a tiny fraction of the cases presented to them.
Jon Patterson is a member of Bradley Arant Boult Cummings LLP's Financial Services Litigation & Compliance team and is based in the firm's Birmingham, Alabama, office. He focuses his financial services litigation practice on mortgage litigation. Practicing since 2003, he has handled cases through all stages of the litigation process, including arbitration hearings, mediation, jury trials, bench trials, and injunctive relief hearings. He has substantial experience in the mortgage litigation arena, managing the litigation of more than 1,000 cases across the country for various mortgage servicers. He is currently managing hundreds of files arising out of the Nevada HOA litigation crisis, and is a regular contributor to the firm's blog, Financial Services Perspectives.Republished with permission. The article, “How Nevada SB 306 and Court Rulings Have Changed the Foreclosure Landscape” first appeared in DS News on July 30, 2015.