Nevada State Court Ruling on Application of HERA to HOA Foreclosure Sales Holds Promise for Lenders and GSEs
The first Nevada state court ruling on the federal Housing and Economic Recovery Act (HERA) holds that a deed of trust owned by a GSE cannot be extinguished by a homeowners’ association’s (HOA) foreclosure sale, a promising development for Fannie Mae, Freddie Mac, and lenders embroiled in quiet title cases with purchasers from HOA foreclosure sales. Specifically, on December 7, 2015, Judge Elissa Cadish of the Eighth Judicial District Court of Clark County ruled that an HOA foreclosure on a super-priority lien could not extinguish a deed of trust securing a debt owned by a Government-Sponsored Enterprise (GSE). See Dist. Ct. Case No. A-13-690924-C. With this ruling, Judge Cadish joins District of Nevada Chief Judge Gloria Navarro in holding that HERA preempts Nevada state law in situations where an HOA forecloses on a property in which a GSE held a security interest at the time of the HOA’s foreclosure sale. Our blog posts discussing Judge Navarro’s rulings can be found here and here. In her ruling, Judge Cadish held that HERA requires the consent of Fannie Mae’s conservator, the Federal Housing Finance Agency (FHFA), before an HOA foreclosure sale can extinguish Fannie Mae’s interest in the property. As noted in a previous blog post, FHFA has not consented, and will not consent, to any such foreclosures. The court found that FHFA did not consent to the HOA’s foreclosure sale, which violated HERA. As a result, the HOA foreclosure sale purchaser’s interest in the property is subject to Fannie Mae’s deed of trust.
While the HERA argument has gained momentum in the federal courts in Nevada in recent months, Judge Cadish’s ruling is the first significant decision on the issue at the state-court level, where the majority of the HOA super-priority foreclosure litigation is pending. There are 32 district judges in the Eighth Judicial District Court in Nevada; thus, the impact of Judge Cadish’s ruling beyond the cases pending in her department is unclear at this time.
The landscape will become clearer in the coming months as more state court judges are presented with and decide the HERA argument, and undoubtedly, the HERA argument will ultimately make its way to the Nevada Supreme Court. In the meantime, one can expect more state-court judges to weigh in on this issue in the near future.