The dispute between lenders and the purchasers at homeowners’ association foreclosure sale regarding superiority of title has embroiled the State of Nevada since at least as early as 2012. Since the issue rose in volume and prominence in Nevada, major decisions from both the Nevada Supreme Court and various federal district courts have both clarified and clouded the issue. Recent events, at least at first glance, could continue the trend of clarifying and clouding the issue.
Recently, in August 2016, the Ninth Circuit Court of Appeals, in a 2-1 decision, found that the pre-2015 version of NRS Chapter 116 facially unconstitutional as it violated the Due Process Clause of the 14th Amendment of the U.S. Constitution because it failed to require notice to junior lienholders. See Bourne Valley Court Trust v. Wells Fargo Bank, N.A., 832 F. 3d 1154 (9th Cir. 2016). A prior summary of the opinion by Ballard Spahr may be found here. Bourne Valley appeared to resolve the issue, at least in federal court.
However, Bourne Valley Court Trust filed a number of post-opinion motions/petitions before the Ninth Circuit. Pending resolution of the post-opinion filings, numerous federal courts sua sponte stayed all HOA lien cases on their docket and even went so far as to state in the stay orders that they disagreed with the reasoning in the Bourne Valley opinion. Additionally, some state courts indicated that the Bourne Valley case would not be binding on them. Therefore, even guidance from a U.S. court of appeals did not provide the clarity expected.
The most important post-opinion filing by Bourne Valley Court Trust was a petition for rehearing or rehearing en banc. Three amici filed amicus briefs in support of the petition, including one from the Nevada Legislature whose statute the Ninth Circuit found facially violated due process rights. The Ninth Circuit ordered Wells Fargo Bank, N.A. to file a response to the petition for rehearing or rehearing en banc, and Wells Fargo Bank, N.A. timely filed its response.
The Ninth Circuit summarily denied the petition for rehearing and rehearing en banc on November 4, 2016. Specifically, the panel, by the same 2-1 margin, denied both a panel rehearing and denied the en banc rehearing because “no active judge has requested a vote on whether to rehear the matter en banc.” Therefore, the issue appears resolved, at least in federal court, such that no association foreclosure sale conducted prior to October 2015 (in October 2015 the statute was amended to clearly require notice to junior lienholders, including a first position deed of trust) extinguished any first position deed of trust because the statutory scheme granting associations non-judicial foreclosure rights violated the 14th Amendment.
However, as has consistently plagued this area of the law, two upcoming dates could cloud what should have been clarity. First, on September 8, 2016,—after the date the Ninth Circuit released the Bourne Valley opinion—the Nevada Supreme Court heard oral arguments on the same issue of whether the pre-2015 version of NRS Chapter is facially unconstitutional under either the Nevada or the U.S. Constitution. The Nevada Supreme Court decision could become particularly important because some state court judges have already taken the position that Bourne Valley, despite its sound reasoning, does not bind them. This means that the outcome of superiority between purchasers at an association foreclosure sale and the beneficiary of a first deed of trust may depend on the state or federal forum. There is no timeline for the Nevada Supreme Court to release an opinion in the case hearing the facial unconstitutionality issue—Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mort., Case No. 68630.
Second, the lack of a timeline on the state side must be buttressed against one very important deadline on the federal side—the deadline to file a writ of certiorari to the U.S. Supreme Court does not expire until February 2017. One important factor considered by the U.S. Supreme Court when determining whether to grant cert is if a state court of final authority has split from a U.S. court of appeals on an important federal issue. If the Nevada Supreme Court were to reach the opposite result as the Ninth Circuit and find the statute constitutional then it could strengthen a writ for certiorari.
Thus, while the issue appears resolved in federal courts, time will tell if the issue becomes finally resolved in all forums in the near future.
