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Nevada Supreme Court's Ruling Favors HOAs Over Banks

Nevada's Supreme Court upheld a law that authorizes homeowner associations (HOA) to foreclose on homes, with unpaid HOA dues, ahead of mortgage lenders. The dispute centered on the Southern Highlands communities. By 2010, the former homeowners had fallen delinquent on their Southern Highlands Community Association (SHHOA) dues but had also defaulted on their mortgage held by U.S. Bank. This caused SHHOA and U.S. bank to separate initiate nonjudicial foreclosure proceedings.

NRS 113.3116 permits HOAs to have a superpriority lien on a homeowner's property for up to nine months of unpaid HOA dues. In cases like these, mortgage holders now have a junior lien in relationship to an HOA's lien. Even if a first deed of trust is recorded before the dues become delinquent, the court ruled the HOAs lien is still superior. Since the HOA has a true superpriority lien, the Supreme Court questioned whether the lien may be foreclosed nonjudicially or requires judicial foreclosure. The court ruled Chapter 116 permits a nonjudicial foreclosure of HOA liens. This means the HOA does not have to seek court approval to seize the house. Thus, HOA can foreclose on a property even if the property owner is behind on their mortgage. Additionally, HOAs can foreclosure on houses even if the homeowner just owes small amount of money to the HOA. The court rejected U.S. Bank's inequity argument that it is unjust to allow a lien stemming from nine months of past HOA dues, which is a nominal amount, to be superior over a first deed of trust.

HOAs now can sell homes with unpaid HOA dues but are only allowed to take what they are owed from the foreclosure sale. The rest of the proceeds of the sale would be distributed to other creditors. The court noted that if the law needs to be changed than it is "for the Legislature to craft, not this court." If you are interested in how this affects your homeowner rights and obligations, please contact our law offices.

Categories: National News