Nevada’s Homeowners’ Association
Super Priority Lien

Nevada Supreme Court Ruling

Saticoy Bay LLC Series 350 Durango 104
Wells Fargo Home Mortgage

The Ninth Circuit Court of Appeals, in the Bourne Valley Court Trust. v. Wells Fargo Bank, N.A. case, ruled that Nevada’s HOA foreclosure process violated the U.S. Constitution. The ruling dealt with the notice provisions of Nevada Revised Statute 116.3116 et. seq., which strips a mortgage lender of its first deed of trust when an HOA forecloses on a property due to delinquent HOA fees.

The statute had an “opt in” notice requirement, which required an HOA to notify the lender that it intended to foreclose only if the lender had affirmatively requested notice. This meant that if a lender had not requested notice from the HOA, the HOA could foreclose on the lender’s interest without notifying them.

The Court held that the “opt in” notice requirement violated the lender’s constitutional due process rights under the 14th Amendment of the U.S. Constitution, making such sales invalid.

In 2015, the Nevada Legislature passed Senate Bill 306, which amended NRS 116 to require HOA’s to provide notice of default and notice of sale to all parties with a recorded interest, thereby mirroring NRS 107.090. Foreclosures made pursuant to the 2015 amendment meet the due process requirements of the 14th Amendment.

The Nevada Supreme Court in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage reached the opposite conclusion and ruled that the NRS 116.3116 does not violate either the Nevada Constitution or the United States Constitution.

The Nevada Supreme Court ruled that neither the HOA’s nonjudicial foreclosure, nor the Legislature’s enactment of the statutes, constitutes a “government action.” The Court determined that an “HOA acting pursuant to NRS 116.3116 et seq. cannot be deemed a state actor.”

The Nevada Supreme Court went on to determine that the Legislature’s enactment of the statute does not constitute state action and therefore they ruled that “Nevada’s super priority lien statutes do not implicate due process.” As such, in the eyes of the Nevada Supreme Court, HOA foreclosure sales noticed via NRS 116.3116 are valid. This is in direct opposition to the Ninth Circuit’s ruling which found the HOA’s nonjudicial foreclosure a “government action” and went on to rule that the process violated the lender’s due process rights.

Nevada now has a split between the Nevada Supreme Court and the Ninth Circuit. To the extent the Nevada Supreme Court ruling deals with Nevada law and statute, it is the final decision. However, the Saticoy Bay ruling addresses the U.S. Constitution as well, making the decision subject to further potential review.

The Nevada Supreme Court cannot overturn the Ninth Circuit’s ruling. The United States Supreme Court is the only court that can address this split decision.

The split decision between the Nevada Supreme Court and the Ninth Circuit Court, as well as other court cases, have caused at least some transactions to fall through.