2014

Buying HOA Foreclosures in Nevada and believe you will take it free from any recorded first deeds? Not so fast!

While the Nevada Supreme Court’s September 18, 2014 decision in SFR Investments Pool 1 v. U.S. Bank, 2014 WL 4656471 (Nev. Sept. 18, 2014) held that a lender’s first trust deed might be eliminated upon the foreclosure of a homeowner association’s assessment lien in light of it’s super priority status, a number of grounds exist which could prevent this from happening. This quick note will address one such basis. On Sept. 25, 2014, the United Stated District Court issued an opinion in which it held that the foreclosure of an assessment lien ineffective against HUD. In that case, the owners had purchased a Las Vegas home with an FHA insured loan. They subsequently defaulted both on the loan and on their assessments to their homeowners association. The Association then conducted a no judicial foreclosure. Thereafter, Bank of America foreclosed. The Association however, took no action to quiet title to the property as to bank of America. . Two weeks after the bank’s foreclosure, Bank of America conveyed title to the property to HUD pursuant to its the FHA insurance contract. The Association later filed suit to quiet its title as against HUD, and for damages for slander of title against HUD and BOA. The court denied the Association’s claims on the basis of federal preemption. 

According to the Court, “State legislation must yield under the supremacy clause of the Constitution to the interests of the federal government when the legislation as applied interferes with the federal purpose or operates to impede or condition the implementation of federal policies and programs.” Rust v. Johnson, 597 F.2d 174, 179 (9th Cir. 1979). The Court found that if the an association’s foreclosure were allowed to stand as against HUD’s claim, it would “operate to impede or condition the implementation of federal policies and programs.” Hence, under the principle of federal preemption, the court declared that the association’s foreclosure was unconstitutional and void. Since the Association’s foreclosure had taken place prior to the lender’s conveyance to HUD, and the association’s lien was superior to Bank of America’s, it would seem that the transfer to HUD was void. Consequently, the Court’s rationale would appear to be dubious at best.

For more information contact:

Matthew L. Grode
Gibbs Giden Locher Turner Senet & Wittbrodt LLP
1880 Century Park East, 12th Floor
Los Angeles, California 90067
Phone: (310) 552-3400
email: mgrode@gibbsgiden.com

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