Nevada Supreme Court Clarifies Limits to its SFR Investments DecisionIn September 2014, the Nevada Supreme Court, in SFR Investments Pool 1, LLC v. U.S. Bank, N.A., held that a portion of a homeowners’ association (HOA) lien for delinquent assessments has true super-priority status over a first deed of trust, meaning that the foreclosure of that lien could extinguish the first deed of trust. Since SFR Investments was decided, the district courts in Nevada have been inundated with quiet title actions filed by purchasers at HOA foreclosure sales who seek judicial declarations that the HOA foreclosure sale extinguished a first deed of trust and that the purchaser owns the property “free and clear.” In a number of these quiet title actions, the purchasers file summary judgment solely on the basis of SFR Investments. On June 22, 2016, in Wells Fargo Bank, N.A. v. Premier One Holdings, Inc., the Nevada Supreme Court rejected this argument, clarified that SFR Investments has limitations, and reversed and remanded a district court’s order granting a purchaser’s motion for summary judgment.

Premier One purchased the property at issue at an HOA foreclosure sale. Three months after the purchase, Premier One quitclaimed the property to a subsidiary, Valladolid, LLC. Despite the quitclaim, Premier One then filed a quiet title action against Wells Fargo seeking a declaration that a first deed of trust had been extinguished by the foreclosure sale. Wells Fargo moved to dismiss, and Premier One moved for summary judgment. Before the district court ruled, Valladolid quitclaimed the property back to Premier One.

The district court denied Wells Fargo’s motion to dismiss and granted Premier One’s motion for summary judgment concluding that “based on the holding in SFR [Investments] . . . there are no genuine issues of material fact in dispute.” Wells Faro appealed, asserting that Premier One lacked standing because it had quitclaimed the property to Valladolid before it filed the complaint and that the district court should not have granted Premier One’s motion for summary judgment.

First, the Nevada Supreme Court concluded that because the property was quitclaimed back to Premier One before the district court ruled on Wells Fargo’s motion to dismiss, Premier One was the real party in interest and had standing to file the complaint.

As to Premier One’s motion for summary judgment, the Nevada Supreme Court reversed and remanded. In rejecting the district court’s entry of summary judgment “based solely on SFR,” the Supreme Court explained that SFR Investments “primarily decided two issues; whether an HOA superpriority lien foreclose extinguishes a first deed of trust; and whether it can be foreclosed non-judicially.” The Court further explained that “SFR did not resolve all disputes surrounding an HOA superpriority lien foreclosure including, for instance, and as appears to be the issue here, commercial reasonableness.” The Court concluded that “it was improper for the district court to grant summary judgment based solely on SFR.”

Although the Wells Fargo decision does not necessarily resolve any new issues in the ongoing development of HOA foreclosure jurisprudence in Nevada, it will prohibit district courts from entering summary judgment for HOA sale purchasers “solely” on the basis of SFR Investments.