As we have previously covered in a series of blog posts, the Nevada Supreme Court held in September 2014 that Nevada Revised Statute chapter 116 allows homeowners’ associations (HOAs) to non-judicially foreclose on homeowners who have overdue assessments, which may extinguish a first lien holder’s deed of trust. That holding, as well as the confusion leading up to it, has sparked thousands of quiet title cases in state and federal courts between purchasers from HOA foreclosure sales who claim to hold title free-and-clear of the first lien holder’s deed of trust and lenders who maintain that their deeds of trust remain valid.
The purchasers’ arguments received a serious blow on August 12, 2016, when the Ninth Circuit issued its decision in Bourne Valley Court Trust v. Wells Fargo Bank, N.A., holding NRS 116 to be unconstitutional on its face because the statute violates a first lien holder’s due process rights by impermissibly shifting the burden to mortgage lenders to affirmatively request notice of an HOA’s foreclosure proceedings. The opinion was designated for publication, which, unlike an unpublished disposition or order, would make it binding precedent for the federal trial courts in the Ninth Circuit (which includes all the federal trial courts in Nevada).
Not surprisingly, given the potential implications of the decision for numerous cases and properties, the Ninth Circuit’s opinion was quickly met with a petition for panel rehearing and petition for rehearing en banc, as well as a motion to dismiss for lack of jurisdiction, all filed by the purchaser, Bourne Valley. Bourne Valley also sought to stay publication of the opinion, filing an emergency motion to stay publication on August 15, 2016. Multiple entities, including purchasers from HOA sales and the Nevada Legislature, have also submitted briefs as amicus curiae.
In its motion to stay publication, Bourne Valley argued that publication of the decision should be stayed because (1) the Nevada Supreme Court was scheduled to hear oral argument in a similar case involving the constitutionality of NRS 116; (2) Bourne Valley was planning to file a petition for rehearing; and (3) Bourne Valley planned to challenge the jurisdiction of the federal courts. The motion to dismiss centered on Bourne Valley’s claims that there was a lack of diversity between the parties and that the borrower was not fraudulently joined to defeat diversity. Bourne Valley argued that the U.S. District Court of Nevada had erred by assuming jurisdiction of the matter and denying its motion to remand.
Last week, on October 18, 2016, the Ninth Circuit denied both Bourne Valley’s emergency motion to stay publication and its motion to dismiss for lack of subject matter jurisdiction. The Court did not provide the basis for the denials.
What, if anything, the denials may portend is unclear. At the very least, it seems likely that the Ninth Circuit’s final decision in the case will be on the merits of the constitutionality argument, rather than dismissing the appeal due to a lack of jurisdiction. The Court also does not appear to be concerned that publication of its decision will create a risk of inconsistency with the Nevada Supreme Court’s anticipated holding in the case that was recently argued before it. It is still unknown whether the Court will ultimately rehear the case; it is possible that the Ninth Circuit will vacate its initial decision and ultimately rule in favor of the purchaser. For now, though, the denials of Bourne Valley’s motions can be seen as a positive development for lenders and servicers, as the Bourne Valley opinion has survived these initial challenges.