Nevada’s Homeowners’ Association
Super Priority Lien

Nevada 9th Circuit Court Case

The Bourne Valley Court Trust v. Wells Fargo Bank, N.A.

The Nevada Ninth Circuit Court of Appeals has ruled that some HOA foreclosure sales may violate the lender’s constitutional due process rights in the Bourne Valley Court Trust v. Wells Fargo Bank, N.A. case.

The Bourne Valley Court Trust v. Wells Fargo Bank, N.A. ruling deals 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; meaning 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.

The Nevada Legislature amended NRS 116 in 2015 to require HOAs 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 and are not subject to this ruling.

The ruling does have the potential to unwind any HOA foreclosure sale that used the “opt in” notice provisions of NRS 116 prior to the Legislature’s amendment.

It is also possible that the Ninth Circuit’s ruling could be appealed to the U.S. Supreme Court. However, considering the current makeup of the Court and the fact that the Supreme Court does not have to take every case presented to it and chooses only a handful of cases each year, it makes this possibility remote.

It is important to note that the notice issue did not come up during the Nevada Supreme Court’s analysis in the SFR Investments case (SFR Investments Pool 1, LLC v. U.S. Bank, N.A.), which determined that HOA liens can wipe out a first deed of trust. That is because the HOA in the SFR Investments matter used the notice provisions required for a default and sale of a deed of trust under NRS 107.090, which require notice of all parties with a recorded interest.