Ninth Circuit Court of Appeals Rules Nevada HOA Foreclosure Notice Provision Unconstitutional

August 19, 2016 Advisory

The U.S. Court of Appeals for the Ninth Circuit, in Bourne Valley Court Trust v. Wells Fargo, recently handed down a significant decision providing that a Nevada foreclosure law was unconstitutional because the law did not require homeowners’ associations (HOA) to give mortgage holders prior notice of foreclosure actions. Over the last several years, numerous quiet title actions have been filed by purchasers of real property at HOA foreclosure auctions, as well as by mortgage holders, to determine the priority of HOA liens and mortgage holders’ first deeds of trust. An action to quiet title is a lawsuit filed to establish ownership of real property. 

In Bourne Valley, a quiet title action was filed relating to the purchase of real property at an HOA foreclosure auction. The original homeowner of the property fell behind on HOA assessments, and the HOA filed a notice to foreclose on the property. The property was subsequently sold at auction, and the purchaser filed an action to quiet title to strip off the mortgage holder’s deed of trust. The purchaser argued that the HOA foreclosure extinguished all junior interests in the property, including over the mortgage holder’s first deed of trust. The purchaser’s argument was based on a recent ruling by the Nevada Supreme Court that interpreted a state statute to give HOAs a “super priority” lien on unpaid assessments, which allowed HOAs to foreclose on their liens and extinguish mortgage liens. 

The Ninth Circuit agreed with the mortgage holder’s argument that Nevada’s HOA statutory notice scheme for foreclosures was unconstitutional. It found that the statutory scheme, which required an HOA to alert a mortgage holder that it intended to foreclose only if the mortgage holder had “opted-in” to receive such notice, violated a lender’s right to due process under the 14th Amendment to the U.S. Constitution. The 14th Amendment requires a state to give reasonable notice before taking an action that could affect a person’s interest in life, liberty, or property. According to the Court, an opt-in scheme does not satisfy the reasonable notice requirement. 

Prior to the Court’s ruling, the Nevada state legislature amended the notice statute to require that HOAs notify all lenders of plans to foreclose and removed the "opt-in" provision from the statute. In short, this amendment requires all mortgage creditors be notified before foreclosures. However, despite the amendment to the statute, the Court’s decision will still have a major impact as most of the HOA foreclosures occurred under the pre-amendment version of the notice statute.

Contact Us
  • Worldwide
  • Boston, MA
  • Denver, CO
  • Edwardsville, IL
  • Jefferson City, MO
  • Kansas City, MO
  • Las Vegas, NV
  • New York, NY
  • Philadelphia, PA
  • Princeton, NJ
  • Salt Lake City, UT
  • St. Louis, MO
Worldwide
abstract image of world map
Boston, MA
225 Franklin Street
26th Floor
Boston, MA 02110
Google Maps
Boston, Massachusetts
Denver, CO
4643 S. Ulster St.
Suite 800
Denver, CO 80237
Google Maps
Denver, Colorado
Edwardsville, IL
115 N. Second St.
Edwardsville, IL 62025
Google Maps
Edwardsville, Illinois
Jefferson City, MO
3405 W. Truman Boulevard
Suite 210
Jefferson City, MO 65109
Google Maps
Jefferson City, Missouri
Kansas City, MO
2345 Grand Blvd.
Suite 1500
Kansas City, MO 64108
Google Maps
Kansas City, Missouri
Las Vegas, NV
3770 Howard Hughes Parkway
Suite 200
Las Vegas, NV 89169
Google Maps
Las Vegas, Nevada
New York, NY
919 Third Ave., 37th Floor
New York, NY 10022
Google Maps
New York City
Philadelphia, PA
2005 Market Street
29th Floor, One Commerce Square
Philadelphia, PA 19103
Google Maps
Philadelphia, Pennsylvania
Princeton, NJ
100 Overlook Center
Second Floor
Princeton, NJ 08540
Google Maps
Princeton, New Jersey
Salt Lake City, UT
257 East 200 South
Suite 350
Salt Lake City, UT 84111
Google Maps
Salt Lake City, Utah
St. Louis, MO
7700 Forsyth Blvd.
Suite 1800
St. Louis, MO 63105
Google Maps
St. Louis, Missouri