Appeals Court Deems Prior Nevada HOA ‘Super Lien’ Statute Unconstitutional

A U.S. Court of Appeals ruled that a controversial Nevada super lien statute was “facially unconstitutional.”  

In September 2014, the Nevada Supreme Court held in SFR Investments Pool 1 v. U.S. Bank ( that a homeowners association “super lien”–consisting of nine months of delinquent assessments owed by a homeowner–is a true priority lien, so that at foreclosure the super lien can extinguish a mortgage lender’s first deed of trust as a “junior” lien interest.   However, questions remained post-decision about whether the Nevada law’s HOA foreclosure notice standards were constitutional-as the Supreme Court itself did not address the matter.

Last week, the U.S. Court of Appeals for the Ninth Circuit weighed in. In Bourne Valley Court Trust v. Wells Fargo (, a three-judge panel of the Ninth Circuit determined that the statute’s unconstitutional nature derived from its “opt-in” notice standard, which only required an HOA to alert a mortgage lender that it intended to foreclose if the lender had affirmatively requested notice from the HOA.  

The panel additionally held that “the ‘state action’ requirement for purposes of constitutional due process was met by the Nevada Legislature’s enactment of the [s]tatute, which unconstitutionally degraded the mortgage lender’s interest in the property.” The Ninth Circuit panel remanded the case for further proceedings in accordance with its ruling.  

Scott Nowak, assistant director of state government affairs with the Mortgage Bankers Association, said the ruling should have broad implications for lenders going forward.  

“In a sense, the Appeals Court is saying that the entire statute is invalid, given its impact on a lender’s constitutional due process rights,” Nowak said. “This ruling should be very persuasive authority before the Nevada Supreme Court. A federal court demonstrated how the U.S. Constitution is affected by the Nevada statute. If the Nevada Supreme Court comes back and says it concurs with the Appeals Court, countless pending cases will be resolved in federal and state court.”  

Nowak noted, however, that the decision did not invalidate HOA super liens and their true priority in Nevada foreclosure actions. “Bourne Valley concerns a prior version of Nevada’s statute that was effective until October 1, 2015.”

Working with the Nevada Mortgage Lenders Association, MBA-supported legislation in the Nevada General Assembly in 2015 ( mitigated the state’s super lien provisions. A key aspect of this legislation was the implementation of mandatory HOA notice to junior lienholders.  

The Bourne Valley case arose in 2011. Renee Johnson, the original homeowner, purchased the property, governed by the Parks Homeowners’ Association, in 2001 with a loan for $174,000 from Plaza Home Mortgage Inc., which sold the loan to Wells Fargo for servicing.   

Johnson fell behind on payments for her HOA dues, and Parks recorded a Notice of Delinquent Assessment Lien on August 30, 2011. The total amount due was $1,298.57. On October 12, 2011, Parks recorded a Notice of Default and Election to Sell. On April 9, 2012, Parks recorded a Notice of Trustee/Foreclosure Sale against the Property.  

On May 22, 2012, a Trustee’s Deed Upon Sale was recorded, reflecting that Horse Pointe Avenue Trust paid $4,145 at the homeowners’ association foreclosure sale. Horse Pointe Avenue Trust conveyed its interest in the Property to Appellee Bourne Valley Court Trust. Bourne Valley filed an action to quiet title in Nevada state court, to extinguish all junior interests in the property–including Wells Fargo’s. The action was removed to the federal district court for the District of Nevada pursuant to 28 U.S.C. § 1441. The district court granted summary judgment for Bourne Valley, which the Ninth Circuit vacated.  

The Nevada Supreme Court’s original super lien ruling had ripple effects nationwide, prompting MBA’s involvement. MBA announced its support for strict adherence to lien priorities–the concept of “first in time, first in right”–which is critical to the functioning of the U.S. housing market, especially one dependent on an active, liquid secondary mortgage market.  

MBA said as a core principle, private liens recorded after origination of a first lien mortgage/deed of trust (mortgage) should not be able to move ahead of the first position mortgagee in foreclosure priority, nor be able to extinguish the mortgage when that private lien is unsatisfied. Allowing HOAs and condominium associations to have “super lien” priority runs contrary to this bedrock housing finance principle on both grounds.

Additionally, MBA issued a Statement of Principles on HOA super liens, co-branded with MBA by six other national financial services trade associations. This document forms the basis of MBA’s advocacy objectives before policymakers.  

Nowak said further court action is possible; Bourne Valley Court Trust may now petition the Ninth Circuit Court of Appeals for a rehearing or en banc review.  

“If they pursue these routes and the decision is upheld, it will be binding on all Nevada federal courts, with Bourne Valley Court Trust’s remaining option being pursuit of the issue before the U.S. Supreme Court,” Nowak said. “Within the Nevada state court system, absent U.S. Supreme Court direction, the Ninth Circuit’s decision will serve as compelling, persuasive authority. Given that countless HOA foreclosure sales were conducted under the prior Nevada statute and are still pending quiet title actions in the courts, the Bourne Valley case will likely have a momentous impact in both the federal and state court systems.”  

The Circuit Court ruling underlines that “there are still a lot of problems with true priority, and leads to a lot of unexpected consequences,” Nowak said, noting that the issue has cropped up in other parts of the country, such as the District of Columbia and Tennessee. “We’ve been working to prevent this from becoming the ‘new normal,'” he said.