JDSUPRA BUSINESS ADVISOR:  The Super-Priority Saga Continues – Nevada Supreme Court Holds That NRS 116’s Notice Provisions Are Constitutional

By Aaron Chastain, J. Hunter Robinson – Bradley Arant Boult Cummings LLP

January 27, 2017

The Ninth Circuit sent shockwaves through the mortgage industry when it held that NRS 116—the statute allowing an HOA to impose a nominal super-priority lien that can extinguish a senior deed of trust when foreclosed—was facially unconstitutional under the Due Process Clause in Bourne Valley Court Trust v. Wells Fargo Bank, N.A. In Bourne Valley (see our previous blog posts on this decisionhere and here), the Ninth Circuit held that NRS 116’s notice scheme did not mandate that mortgagees receive actual notice of these HOA super-priority lien foreclosures, but instead required that mortgagees request such notice from the HOA in advance of the HOA’s foreclosure sale. The Ninth Circuit determined this “opt-in” notice scheme violated the Due Process Clause’s requirement that statutes authorizing the extinguishment of junior liens mandate that junior lienholders receive actual notice of the foreclosure sales that can extinguish their liens.

Importantly, the Ninth Circuit held that an HOA’s foreclosure under NRS 116 constituted state action, a threshold determination in Due Process Clause challenges, as the Due Process Clause only applies to state actions. Specifically, the Ninth Circuit held that NRS 116 foreclosures constitute state action because HOA liens are purely statutory, rather than contractual, like deeds of trust. Because an HOA could not impose and foreclose on its super-priority lien absent the statutory authority granted to it through NRS 116, an HOA’s super-priority lien foreclosure constitutes state action under Bourne Valley. Read more:

http://www.jdsupra.com/legalnews/the-super-priority-saga-continues-52444/