The Super-Priority Saga Continues – Nevada Supreme Court Holds That NRS 116’s Notice Provisions Are Constitutional | Financial Services Perspectives:
Yes, indeed. The saga continues. To recap:
1. In SFR Investments Pool v. US Bank, the Nevada Supreme Court ruled on 9/18/2104 that an HOA nonjudicial foreclosure on their "superlien" for unpaid assessments extinguishes a first mortgage. The bank said that they had been denied due process of law because they didn't have adequate notice of the NJF.
2. But then on 8/15/2016, the 9th Circuit Court of Appeals ruled in Bourne Valley Court Trust v. Wells Fargo Bank that this law violates the due process rights of the bank holding the first mortgage. Where is the state action that gives rise to a due process claim? It lies in the state legislature enacting the statute that gives the HOA the right to do this. What is the denial of DP? It relates to the adequacy of the notice to the first lienholder that the statute requires.
3. But stop the music: The Nevada Supreme Court struck again. On 1/26/2017, they ruled in Saticoy Bay LLC v Wells Fargo bank that there is no state action, and thus no constitutional claim for deprivation of due process.
The Nevada Supreme Court and the federal 9th Circuit Court of Appeals have different rulings on the same statute. So, what does this mean? I think it probably means that the choice of courts makes all the difference. In Nevada state courts, the Nevada Supreme Court is the final authority. But if the case is in federal court, the 9th Circuit's ruling is the law.
In situations like this, the US Supreme Court has been known to grant certiorari in order to decide which interpretation should prevail. Rule 10 of the USSC Rules provides that they are more likely to take a case if "(b) a state court of last resort has decided an important federal question in a way that conflicts with the decision of another state court of last resort or of a United States court of appeals," which is just the situation. But somebody has to present this issue to them in a real case, and I do not know if that is in the works or not.
And the statute in question was amended after the SFR case, so I defer to NV lawyers as to how big an issue this will be going forward. The language in the amendment requires more detailed notice, and includes this: "(II) If, not later than 5 days before the date of the sale, the holder of the first security interest on the unit satisfies the amount of the association’s lien that is prior to that first security interest pursuant to subsection 3 of NRS 116.3116 and, not later than 2 days before the date of the sale, a record of such satisfaction is recorded in the office of the recorder of the county in which the unit is located, the association may foreclose its lien by sale but the sale may not extinguish the first security interest as to the unit." So now (if I am reading all this correctly) the bank gets more detailed notice and has a chance to pay off the delinquent assessments so their lien doesn't get extinguished.