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News & Press: Industry News

Nevada HOA Super-Lien Statute Ruled Unconstitutional

Tuesday, September 20, 2016  
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A federal appeals court struck a blow against the supremacy of Nevada HOA liens. In a 2-1 decision, the Ninth Circuit Court of Appeals, which covers California as well as Nevada, ruled unconstitutional a Nevada statute allowing a HOA foreclosure lien to wipe out a first trust deed because the statute did not require prior notice.

In Bourne Valley Court Trust v. Wells Fargo Bank, N.A., the Ninth Circuit ruled that Nevada law violated the first lien holder’s due process right because the first lien holder had to request notice of the HOA lien sale under the then applicable Nevada law. According to the majority decision, the requirement for lenders to request notice (opt-in), rather that automatically get notice, failed the constitutional due process notice requirement. The majority held that state action was present because the extinguishment of preexisting deeds of trust was based on the statute enacted by the Nevada legislature, rather than contract. The majority did note that the Nevada legislature recently amended the statute to require notice be given by HOA’s, even where not requested. In the majority’s view the amendment strengthened their argument that the statute prior to its amendment did not require prior notice of the foreclosure.

The dissenting judge did not believe that there was state action because there was no state actor involved, the matter was a private foreclosure sale. Furthermore, the dissent believed that a comprehensive reading of the statute provided for a pre-sale notice to lenders, and that such a reading of the statute avoided the constitutional question.

California Land Title Association

1215 K Street #1816 Sacramento, CA 95814-3905
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