Gordon Rees Scully Mansukhani Las Vegas partner Robert Larsen recently obtained summary judgment in federal court in favor of the firm’s client Green Valley South No. 1 Homeowners Association (“Green Valley South HOA”). In this case, the prior homeowner failed to pay periodic assessments owing to the client, who recorded a lien for the delinquent assessments and eventually foreclosed on the property for $5,100. By operation of the Nevada superpriority lien statute which gave the HOA’s lien priority over any earlier-recorded mortgage, the sale extinguished the mortgage securing a $232,000 loan held by a securitized trust of U.S. Bank (“US Bank”).
US Bank sued Green Valley South HOA and the purchaser, alleging that the foreclosure sale was invalid because the foreclosure statute was unconstitutional and that its interest survived the foreclosure sale due to irregularities with the foreclosure sale. Gordon & Rees' attorneys argued that there was no evidence of any irregularity with the sale, and US Bank was afforded prior notice of the sale which comported with due process. The Court preserved the sale and found no wrongful conduct on the part of the client resulting in a complete victory for the client.
Background of Superpriority Liens in Nevada
Nevada has a unique law related to liens of homeowners associations. The law grants priority to a portion of a homeowners association assessment lien over all other liens, including a deed of trust/mortgage which would otherwise be in first position. This is commonly described as the superpriority lien. Foreclosure of the superpriority lien can extinguish a mortgage. During the recent recession, home values plummeted and many homeowners stopped paying their mortgages and homeowners association assessments. Several thousand foreclosure sales were conducted by homeowners associations from 2012-2015.
In 2014, the Nevada Supreme Court validated the statute establishing the superpriority lien and held that a foreclosure of a homeowners association lien which includes a superpriority lien operates to extinguish the deed of trust. See SFR Inv. Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408, 411 (Nev. 2014).
This led to race to the courthouse by banks claiming wrongful foreclosure in an effort to protect the interest in the now extinguished mortgages.
Gordon Rees Scully Mansukhani Las Vegas attorneys Rob Larsen, Dave Gluth, Brian Walters and Wing Wong have defended homeowners associations in more than 200 cases involving superpriority liens.