A federal appeals court said an older version of a Nevada law that stripped lenders of their first deed of trust when a homeowners' association forecloses on a property is unconstitutional.
In a 2-1 decision, the Ninth Circuit Court of Appeals vacated a district court decision in the case Bourne Valley Court Trust v. Wells Fargo, which allowed the plaintiff in that case to change the title to a property it purchased in a foreclosure sale from an HOA. The court's decision could set precedent for a number of similar cases in Nevada regarding HOA liens and foreclosures.
The case centered on the notice scheme set up in a prior version of the state's statute pertaining to HOA liens. At the time the foreclosure occurred, the statute required an HOA to alert a lender of its intention to foreclose on a property only when a lender had actively requested such notice.
The court's majority ruled that the scheme "violated the lender's constitutional due process rights under the 14th Amendment" because of the way in which it shifts the burden to the lenders.
Last year, the state legislature amended the statute, requiring HOAs to notify all lenders of plans to foreclose and removing the requirement that lenders request such notice.
While this will not affect actions made after 2015, attorneys with the mortgage banking group at the law firm Ballard Spahr said the court's decision will still have major ramifications.
"The vast majority of currently pending quiet title actions involve sales which occurred before 2015 and which were governed by the pre-amendment version of the notice statutes," the group at Ballard Spahr wrote. "Therefore, Bourne Valley will apply to most of these cases."
In 2014, the Nevada State Supreme Court
