Nevada Supreme Court Strikes Significant Blow Against HOA Super-Priority Foreclosure-Sale Purchasers

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Nevada Supreme Court Strikes Significant Blow Against HOA Super-Priority Foreclosure-Sale Purchasers

Nevada Supreme Court Strikes Significant Blow Against HOA Super-Priority Foreclosure-Sale Purchasers

Lexology-

In September 2014, the Nevada Supreme Court held that an HOA could foreclose on its nominal super-priority lien and extinguish a senior mortgage in SFR Investments Pool 1, LLC v. U.S. Bank, N.A., a ruling that initially seemed cataclysmic to the mortgage industry. SFR Investments spawned thousands of contentious quiet-title actions, each pitting the senior mortgagee against the HOA-sale purchaser regarding whether the purchaser owned the property free and clear after its miniscule, speculative investment. While the mortgage industry’s outlook in Nevada after SFR Investments seemed rather bleak, the tide has recently turned in many respects, as the Nevada Supreme Court has issued several significant rulings in 2016 favorable to the mortgage industry in this continued battle over the effect of HOA super-priority lien foreclosures.

This pattern continued on August 11, 2016. In Stone Hollow Avenue Trust v. Bank of America, N.A.¸ the Nevada Supreme Court held that a mortgagee’s tender to the HOA of the super-priority amount of the HOA’s lien extinguishes the super-priority lien, even if the HOA wrongfully rejects the tender. In Stone Hollow, the senior mortgagee sent the HOA a check for nine months’ delinquent HOA assessments—the statutory super-priority amount of the HOA’s lien, as recently confirmed by the Nevada Supreme Court in Horizon at Seven Hills HOA v. Ikon Holdings, LLC. The letter enclosing the check explained the check was meant to pay off the HOA’s super-priority lien. The HOA rejected this full super-priority tender, a decision the Nevada Supreme Court deemed “unjustified.” This unjustified rejection did not alter the legal effect of the tender, as the Nevada Supreme Court explained that “[w]hen rejection of a tender is unjustified, the tender is effective to discharge the lien.” Because the super-priority lien was extinguished before the HOA’s foreclosure sale, the Court found that the HOA foreclosed only on the portion of its lien that was inferior to the senior mortgage. Consequently, the HOA’s foreclosure of this junior portion of its lien had no effect on the senior mortgage, meaning the HOA-sale purchaser took title to the property subject to the senior mortgage. The Court declined to address the argument that the HOA’s rejection of the tender was justified because of the tender’s purported conditions, as the argument was not raised at the trial court or on appeal.

[LEXOLOGY]

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