When a mortgage company faces having its mortgage interest swept away in a quiet title action following an HOA lien foreclosure, the mortgage company comes up with all sorts of arguments as to why its mortgage should remain intact. This time, the arguments did not carry the day.
Facts. In a 2017 Nevada case, a successful purchaser at an HOA lien foreclosure sale bought the condo for $35,000. The fair market value of the condo at the time was $335,000. The unit purchaser filed a quiet title action against Nationstar, who held the first mortgage on the unit, seeking to extinguish Nationstar’s mortgage so the purchaser could have clear title to the unit. Nationstar objected, arguing that the HOA lien foreclosure sale price was so low as to be “commercially unreasonable” and the court should invalidate the sale and allow Nationstar’s mortgage to remain intact.
Court Rulings. The Court found that “a low sales price, in and of itself, does not warrant invalidating an HOA foreclosure sale.” The Court held that “commercial reasonableness” standard applied to the Uniform Commercial Code’s Article 9 (sales of personal property), it did not apply to HOA lien foreclosure sales. Bottom line, the Court held that even a grossly inadequate sales price at a lien foreclosure sale is not enough to set aside the sale; instead there must be evidence of fraud, unfairness, or oppression—and here, no such evidence existed. The Court upheld the HOA foreclosure sale despite Nationwide’s arguments in opposition.
Lesson. This case provides some solace for condo associations around the country, because it is a very rare case indeed where the unpaid assessments equal the fair market value of the property. At most lien foreclosure sales, the sales prices are quite low in comparison to the fair market value. Based on this case, mortgage companies cannot seek to invalidate an association’s sheriff’s sale simply because the winning bid is only a small fraction of the unit’s market value.