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12/02/2014 Jessica K. Peterson, Esq.

On September 18, 2014 the Nevada Supreme Court finally settled a long standing battle between Homeowner Associations (HOA’s) and Banks when it decided the case of SFR Investments Pool 1 v. U.S. Bank, 130 Nev. Adv. Op. 75, 334 P.3d 408, 409 (2014), reh'g denied (Oct. 16, 2014).

            SFR Investments purchased a home from Southern Highlands Homeowners Association at a trustee sale after the HOA foreclosed on the property due to the homeowners failure to pay their monthly HOA assessment. The homeowners had also defaulted on their mortgage and U.S. Bank sought to foreclose on the property as well. The HOA conducted the trustee's sale prior to US Bank. SFR purchased the property and received and recorded a trustee's deed. U.S. Bank’s then sought to foreclose as well. SFR filed an action to quiet title and enjoin the sale. SFR alleged that the HOA trustee's deed extinguished U.S. Bank's deed of trust and vested clear title in SFR, leaving U.S. Bank nothing to foreclose on.

            The Eighth Judicial District Court held that the HOA must proceed judicially to validly foreclose its superpriority lien and since the HOA foreclosed nonjudicially U.S. Bank’s deed of trust survived and was senior to the trustee’s deed received by SFR. SFR appealed and on September 18, 2014 the Nevada Supreme Court reversed holding that NRS 116.3116(2) gives an HOA a true superpriority lien and proper foreclosure of such a lien extinguishes a first deed of trust. However, another recent decision, Washington & Sandhill Homeowners Ass'n v. Bank of Am., N.A., 2014 WL 4798565 (D. Nev. Sept. 25, 2014) may modify result reached in SFR if the mortgage is federally backed.

            The above cases are probably not the last we have heard on this matter. In the meantime, the old maxim of caveat emptor also known as “buyer beware” is especially important.

For more information contact us at office@fdlawlv.com.

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