Nevada Supreme Court Holds Foreclosure Of A Homeowners Association's Assessment Lien Extinguishes A First Mortgage

Foreclosure

On September 18, the Nevada Supreme Court decided that a homeowners association may foreclose its assessment lien non-judicially and that the foreclosure extinguishes a first mortgage. SFR Investments Pool v. US Bank (130 Nev. Adv. Opinion 75, September 18, 2014). The lender argued that, because the “superlien” law gives an HOA lien priority over a first mortgage to the extent of nine months of unpaid dues, only nine months of unpaid dues should have priority over a first mortgage, not the entire assessment lien. The Nevada Supreme Court acknowledged competing views of “payment priority” and “lien priority” proponents, but ultimately sided with the lien priority camp because of the language of the superlien statute and general principles of lien priority. The Court suggested that lenders may prevent losses associated with HOA superliens by paying off the liens or by establishing escrow accounts for HOA assessments to avoid using its own funds. The Nevada decision is consistent with an August 28 decision on the same issue by the D.C. Court of Appeals in Chase Plaza Condominium Association v. JP Morgan Chase Bank, No. 13-CV-623 & 13-CV-674 (D.C. Cir. 2014).