Continuing Developments in Nevada HOA Lien Litigation

Ballard Spahr LLP

Ballard Spahr LLP

Recently, in Nationstar Mortgage, LLC, vs. Saticoy Bay LLC Series 2227 Shadow Canyon, the Nevada Supreme Court issued a decision following a line of cases stemming from the analysis in SFR Investments Pool, LLC vs. U.S. Bank N.A., which holds that non-judicial foreclosures by homeowner associations (HOAs) can extinguish a first deed of trust. In this latest decision, the court declines to adopt a portion of the Restatement (Third) of Property: Mortgages.

Respondent Saticoy Bay LLC Series 2227 Shadow Canyon (Saticoy Bay) purchased property at an HOA foreclosure sale for $35,000 and subsequently filed an action for quiet title and a declaration from the court that Saticoy Bay acquired the property unencumbered from the first deed of trust. Nationstar, the beneficiary of the deed of trust, filed a motion for summary judgment in which Nationstar argued that the $35,000 purchase price when compared to the $335,000 value of the property was inadequate under Restatement (Third) of Property: Mortgages, Section 8.3, cmt. b. This comment contains a bright line rule that a foreclosures sale that is below 20 percent of the fair market value is considered grossly inadequate and this inadequacy is a stand-alone basis to invalidate a foreclosure sale. Nationstar further argued that the Nevada Supreme Court adopted the 20-percent standard in a footnote citation to Section 8.3's comment b in Shadow Wood HOA v. N.Y. Cmty. Bancorp..

The district court sided with Saticoy Bay's argument that price alone is not to invalidate an HOA foreclosure. After considering both Nationstar's arguments regarding the interpretation of the Restatement and the application of Section 8.3 in the Shadow Wood decision, the Nevada Supreme Court affirmed the district court. It held that the district court did not adopt the 20-percent standard in Shadow Wood when it cited to comment b in Section 8.3. Rather, the Court held the standard articulated in Golden v. Tomiyasu applies, which requires a showing of fraud, unfairness or oppression.

However, despite its rejection of Section 8.3's 20-percent standard, the Supreme Court went on to explain that the purchase price at an HOA foreclosure is not ""wholly irrelevant,"" suggesting that only "slight evidence of fraud, unfairness or oppression" is required in cases where there is a great disparity between the purchase price and the fair market value of the property.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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