The Nevada Supreme Court again turned its attention to superpriority liens in the first quarter of 2020, issuing two opinions dealing with tenders, i.e. attempts or offers to pay. These decisions outline additional ways that the superpriority portion of an HOA’s lien can be satisfied, offering hope to lenders embroiled in litigation over the continuing validity of their deeds of trust.
In our most recent coverage of Nevada’s HOA superpriority lien litigation, we discussed the court’s decision in Bank of America v. SFR Investments Pool 1, which confirmed that a lender’s offer of payment with a check was a valid tender that discharged the superpriority portion of the lien. We also discussed a second decision, Bank of America v. Thomas Jessup, which held that the “excuse of tender” rule applied to HOA liens. If the HOA would have rejected a lender’s superpriority payment, the lender was “excused” from tendering payment to protect its deed of trust. Six months after that decision, the full en banc court decided to vacate the panel’s opinion.
Litigants have waited and wondered for several months what the ultimate outcome of the excuse of tender doctrine would be. Rather than announcing a final opinion in Jessup, the Nevada Supreme Court instead published an en banc opinion on the subject in another case: 7510 Perla Del Mar Ave Trust v. Bank of America. Perla Trust also concerned a situation where a lender extended an offer to pay the superpriority lien, but did not send a check to the HOA because it did not have a way to calculate the superpriority amount.
In this case, evidence established that the HOA’s collection agent had a policy and practice of rejecting Bank of America’s superpriority tenders. Under those facts, the court was satisfied that tendering a superpriority payment would have been “futile.” As a result, the court held that the excuse of tender rule applied: the obligation to tender payment was excused, and the superpriority portion of the HOA’s lien was extinguished. Under this rule, a rejected offer to pay has the same result as a tendered payment – it cures the default as to the superpriority portion of the HOA’s lien. If the HOA later forecloses on the remaining subpriority portion, the senior deed of trust remains intact.
A week later, the Supreme Court addressed whether a homeowner’s pre-foreclosure payments to an HOA can satisfy the superpriority portion of the HOA’s lien. In 9352 Cranesbill Trust v. Wells Fargo Bank, the HOA had initiated foreclosure proceedings after the homeowner became delinquent on assessments. After the recording of the lien, the homeowner had made several partial payments on her account. The sum of the payments exceeded the superpriority portion of the HOA’s lien. This fact led the district court to hold that the superpriority portion had been satisfied by the homeowner.
The Supreme Court reversed the decision, but did not adopt the HOA-sale purchaser’s argument that a homeowner is incapable as a matter of law from satisfying the superpriority portion. Instead, the court mandated a fact-specific inquiry: trial courts are required to determine how the payments were applied by the HOA. If the HOA applied the payments to the superpriority portion of the lien, then that portion would be satisfied, and the foreclosure sale would not threaten the senior deed of trust. The court explained that this inquiry encompasses “the actions and express or presumed intent of the debtor and creditor” as well as “the competing equities involved.”
From our experience in these cases, homeowners rarely specified how their pre-foreclosure payments should be applied, and it was not always clear how an HOA applied payments to the specific portions of a homeowner’s delinquency. As a result, most homeowner-tender cases will turn on how the court decides the HOA should have applied the payments. Lenders must convince the court that the most equitable result comes from applying the homeowner’s payments to the lien’s superpriority portion such that the HOA’s subsequent foreclosure did not extinguish the senior deed of trust.
On the whole, lenders should be pleased by these new decisions from the Nevada Supreme Court. With the court’s endorsement of the excuse of tender doctrine and confirmation that homeowner tenders are capable of paying off the superpriority portion, lenders have two more arguments at their disposal to protect their deeds of trust.