Notice Me: The New Notice Requirements for HOA Lien Foreclosures in Nevada
In a previous blog post, we reported on Senate Bill 306, passed by Nevada Governor Brian Sandoval on May 28, 2015. The legislation redresses the substantial harm caused by SFR Investments Pool 1, LLC v. U.S. Bank, N.A. In SFR Investments, the Nevada Supreme Court held that a homeowners association (HOA) lien is a true super-priority lien that can extinguish a first deed of trust if foreclosed upon. This extinguishment occurs regardless of whether the lienholder received actual or constructive notice of the HOA sale, particularly if the lienholder did not “opt-in” to receive notice under Nevada Revised Statutes (NRS) Chapter 116. Senate Bill 306, however, fundamentally alters the notice structure of NRS 116 to protect lenders’ interest in their property. This article explains the new notice provision requirements for Nevada HOA foreclosure sales, which will take effect October 1, 2015.
Pursuant to Senate Bill 306, the HOA, or its agent, is now required to send both the Notice of Default and Election to Sell, as well as the Notice of Sale, to lenders or servicers with recorded security interests. With respect to the Notice of Default and Election to Sell, NRS 116.31163 provides that the HOA is required to send such notice via certified mail to each holder of a security interest whose interest is recorded prior to the HOA filing the initial notice of default. Additionally, the HOA must provide notice to any person or entity that has requested notice pursuant to NRS 116.31168. In a situation where the original lender subsequently assigns the deed of trust to a new mortgagee, the new mortgagee is entitled to notice only if the assignment of deed of trust was recorded prior to the HOA’s notice of default.
Comparably, NRS 116.31165, which address the Notice of Sale, provides that the HOA must send the Notice of Sale via certified mail to each person entitled to receive a copy of the Notice of Default and Election to Sell under NRS 116.31163(1), as well as “the holder of a security interest recorded before the mailing of the notice of sale.” In other words, if the security interest holder changes between the time the notice of default is filed and the time the Notice of Sale is filed, the new lienholder is protected and entitled to notice of the sale prior to the sale taking place. This new provision thus requires the HOA or its agent to check the land records at two separate times during the HOA foreclosure sale process.
It is important to remember that NRS 116.31163 and NRS 116.31165 only require notice to the recorded security interest holder. However, both provisions of the Nevada statute implicate NRS 116.31168, which addresses mortgage servicers. Specifically, NRS 116.31168 permits a servicer (not a security interest holder) to receive a copy of both the Notice of Default and Election to Sell and Notice of Sale by recording in the office of the county recorder of the county in which the real property is located a Request for a Copy of the Notice of Default and Election to Sell and/or Notice of Sale. Such notice by the servicer should state the name and address of the person requesting notice, provide the legal description of the unit, and state the name of the unit’s owner and association. NRS 116.31168 mandates that when such notice is recorded by the servicer, the HOA, or its agent, must send the Notice of Default and Election to Sell and the Notice of Sale to the servicer via certified mail.
Furthermore, the new provisions of NRS Chapter 116 govern where these notices must be sent. In particular, Section 8.5 of Senate Bill 306 sets forth that “a bank, credit union, savings bank, savings and loan association, thrift company or other financial institution which is licensed, registered or otherwise authorized to do business in [Nevada] and which is the mortgagee or beneficiary of a deed of trust under a residential mortgage loan” must “provide to the Division of Financial Institutions the name, street address and any other contact information of a person to whom: (b) a unit-owner’s association must send any notice required to be given pursuant to NRS 116.3116 to NRS 116.31168, inclusive.” Additionally, the Division of Financial Institutions will maintain on its website the information provided by the lenders so that an HOA or its agent can locate the information and send the notices to the correct address. This requirement is intended to create a specific notice address for each lender, bank, etc. to receive these notices.
Finally, NRS 116.31162(e) now mandates that the HOA or its agent conducting the sale execute and record an affidavit stating that upon that person’s direct and personal knowledge, the HOA or its agent provided the required notices to the parties set forth above. The affidavit must state the name and address of each holder of a security interest to which the Notice of Default and Election to Sell and Notice of Sale were sent.
Provided these new notice requirements, it is pertinent that mortgagees ensure their deeds of trust (or assignments of deed of trust) are properly recorded in the appropriate county. With regards to mortgage servicers particularly, servicers should begin recording requests for notice for all serviced-loans in Nevada subject to an HOA or community association to ensure they are notified of pending HOA sales.