On May 28, 2015, Nevada Governor Brian Sandoval signed into law Senate Bill 306, which will fundamentally alter the HOA foreclosure sale landscape in Nevada. Following the Nevada Supreme Court’s decision in September 2014 in SFR Investments Pool 1, LLC v. U.S. Bank (holding that NRS 116.3116 was a true priority lien and an HOA foreclosure sale could extinguish a first deed of trust), the Nevada legislature took action to remedy a serious issue facing the lending community in Nevada. Bradley Arant provided guidance to the lending industry in the review and comment phase of the new legislation.

The revised law, which will take effect October 1, 2015, provides much needed clarity to the super-priority statute (NRS 116.3116) with respect to various issues, chief among them: (a) the type of notice that must be provided to lien holders by an HOA regarding the HOA deficiency and the HOA sale; (b) the manner of notification of the HOA deficiency and HOA sale; (c) amounts that can lawfully be included in the super-priority amount that can extinguish a first deed; and (d) the location of an HOA sale. Further, and importantly, the revised law provides a 60-day redemption period for the owner of the property and first lien holder following an HOA sale. Presently, there is no redemption period.

With respect to notice, the revised law requires that the two important notices concerning the HOA lien and foreclosure sale—the Notice of Default and Election to Sell and the Notice of Sale—be provided by certified mail to any lien holder. More importantly, the Notice of Default and Election to Sell must specify the super-priority amount. Previously, HOAs and collection agents would simply identify the total HOA lien amount due, and lenders and servicers were left to guess at the super-priority amount. In many instances, certain lenders and servicers attempted to calculate on their own the super-priority amount (as the amount would not be specifically identified by the HOA or collection agent), and would tender such payment to the HOAs, only to have the funds rejected as insufficient. This revised law should put an end to that type of practice from the HOAs and collection agents.

Other important changes:

  • A first lien holder now has up to five days prior to the HOA sale to satisfy the super-priority amount, and must then record—at least two days prior to the sale—that such super-priority amount was paid.
  • The HOA or its agent must now record an affidavit indicating that proper notices were sent to the first lien holder. No such requirement previously existed.
  • The revised law caps the amount of costs and fees that an HOA can levy as part of the super-priority amount (essentially around $1,350), and it specifically prohibits attorneys’ fees from being included as part of the super-priority amount.
  • The revised law mandates that the auctioneer at the HOA sale state whether or not the first lien holder satisfied the super-priority lien.
  • The revised law provides the owner of the property and the first lien holder a 60-day right of redemption.

The revised law takes effect October 1, 2015. While the revised law is not perfect, it is a massive improvement and provides the lending industry with guidance on how to handle HOA deficiencies and defaults going forward.