9th Circuit affirms dismissal of bank’s quiet-title action against HOA

Courts Appellate Ninth Circuit Foreclosure Mortgages

On November 5, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court judgment, which had dismissed for failure to state a claim a national bank’s quiet-title action against the purchaser of real property at a foreclosure sale, a Nevada homeowners association (HOA), and the HOA’s agent (collectively, “defendants”). According to the opinion, borrowers financed the purchase of a home located within the HOA through the bank, but fell behind on their HOA dues. The HOA recorded a lien on the property for the delinquent assessments, foreclosed on the home to satisfy the lien, and ultimately sold the property at a public auction to a trust, which extinguished the bank’s deed of trust. The bank filed the quiet-title action against the defendants, alleging, among other things, that the foreclosure sale was invalid and that the bank’s “deed of trust continues as a valid encumbrance against the [p]roperty.” In addition, the bank claimed that applying Nevada Revised Statutes section 116.3116 “produces a harsh result” because it prioritizes an HOA lien over “all other liens, including the first deed of trust held by the mortgage lender,” and also violates the Takings Clause and the Due Process Clause of the U.S. Constitution. The bank further argued that the foreclosure sale was not valid because it did not receive adequate notice of the sale. The district court granted the defendants’ motion to dismiss, ruling, among other things, that the HOA had the right to foreclose on the property and that the bank had received adequate notice of the property’s sale.

On appeal, the 9th Circuit concluded that the bank’s constitutional rights under the Takings Clause—which provides that private property cannot be taken for public use “without just compensation”—were not violated. “Because the enactment of section 116.3116 predated the creation of [the bank’s] lien on the property, [the bank cannot] establish that it suffered an uncompensated taking,” the appellate court wrote, additionally noting that “the foreclosure proceeding itself was not a ‘taking’ because the Takings Clause governs the conduct of the government, not private actors.” With respect to the alleged violation of the Due Process Clause, the appellate court agreed with the district court’s determination that the bank had received adequate, actual notice of the delinquent assessment and the foreclosure sale.