Nevada Supreme Court Rules HOA Super-Priority Liens Can Be Revived after ReleaseHomeowners’ associations have a more robust tool for forcing mortgage lenders to pay delinquent assessments following a September 14 decision by the Nevada Supreme Court. Nevada HOAs have enjoyed a super-priority lien under NRS 116.3116 for nine months of unpaid assessments preceding institution of foreclosure proceedings, in addition to certain charges for maintenance and nuisance abatement.  In Property Plus Investments, LLC, v. Mortgage Electronic Registration Systems, Inc., the court found that this super-priority lien is not a “one-shot offer,” but can be revived even after a previous super-priority lien has been discharged.

In Property Plus, the HOA recorded a notice of lien in 2010 for unpaid assessments on a property securing a $215,000 mortgage loan. The loan servicer for the mortgage lender attempted to pay $522 to the HOA, representing nine months’ worth of assessments, but the HOA rejected the payment.  Subsequently, the property owner entered a payment plan with the HOA, and the HOA released the 2010 lien. In 2012, however, the HOA recorded a second notice of lien for unpaid assessments. That time, the property went to a foreclosure sale and sold to a new owner for $7,500. The purchaser at the sale then brought a quiet title suit, claiming that the sale foreclosed on the HOA’s super-priority lien and extinguished the first mortgage. The lender countered that its $522 payment extinguished the super-priority portion of the lien and that any foreclosure thereafter could not impact the mortgage.

The court rejected this argument, finding that NRS 116.3116 “does not limit an HOA to one lien enforcement action or one super-priority lien forever.” Instead, the court held that once the HOA rescinds or releases a previous lien, the HOA may later assert a new super-priority lien on the same property for any delinquent assessments coming due after the rescission. Any other result, the court found, would be contrary to the purpose of the statute: to “encourage the collection of needed HOA funds and avoid adverse impacts on other residents.”

In light of the ruling, lenders should continue to closely monitor receipt of any foreclosure notices from homeowners’ associations, and should not assume that the mortgage is protected just because the property has been previously redeemed from foreclosure.