LAS VEGAS, Oct. 3, 2014 /PRNewswire/ — The Nevada Supreme Court has issued an extremely important decision that will impact every residential common interest community in Nevada. The decision will also impact professional owner associations that are governed by Nevada Revised Statutes Chapter 116.
In its decision in SFR Investments Pool I, LLC v. U.S. Bank, the Court tackled the issue of whether a homeowners association's foreclosure of a lien for nonpayment of assessments wipes out a bank's deed of trust. The Nevada Supreme Court found that "yes," a bank's deed of trust is "wiped out" by an association's lien foreclosure pursuant to the superpriority given to the association under the statute (NRS 116.3116(2)).
What does this decision mean to homeowners associations in Nevada? It means that if the association foreclosure sales were conducted properly, the buyers at the sales, or the associations that took the homes back in foreclosure, own homes free of the bank's deed of trust. These buyers and associations often bought or credit bid, as the case may be, at the amount of the assessments, fees, costs, late charges and interest, rather than the full value of the home. Thus, these buyers and associations own homes with significant equity and can now sell at market value.
There are many, many buyers and associations involved in cases concerning the priority issue now pending in District Court. Many of the buyers will likely file motions for summary judgment citing the SFR Investments decision. While that may be the end of some cases, other parties will now likely litigate over whether the sales were conducted properly, whether the banks got proper notice, whether there is title insurance that covers the banks, etc. For those buyers and associations that are not yet in litigation, they will likely be in litigation in the near future unless title companies will issue title policies free of any bank interest to new buyers. Of course, those associations now owning homes can certainly continue to lease them out and wait for the fallout from this decision; in doing so, the associations may avoid some litigation.
As for the payment of assessments in the short term, associations will likely face some foreclosures because the loans that now exist may not provide for the impounding of assessments (although there is a statute, NRS 116.3116(3), that allows banks to impound assessments upon agreement). Associations should not let the unpaid assessments get past 9 months as this is the magic number banks will pay to avoid foreclosure wiping out their first deed of trust. As for the longer term, associations will most likely see fewer and fewer foreclosures; most assessments will be paid to associations because banks will most likely impound assessments.
Additionally, the superpriority statute will likely be under heavy scrutiny at the legislature in a few months. "Each group will pose their version of NRS 116.3116 to protect their own interests, " said Terry Coffing, Las Vegas civil litigation attorney and founding partner at Marquis Aurbach Coffing (MAC Law). "Hopefully, the groups can work together to so that associations have a meaningful way to enforce nonpayment by their owners and at the same time allowing the homes to be financed in a reasonable fashion."
For additional insights on the potentially sweeping affects of this decision, contact MAC Law at 702-382-0711 or via email.
Media Contact:
Terry Moore
MAC Law
702-942-2135
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