Nevada Supreme Court Maintains Foreclosures of HOA Liens May Eliminate First Priority Deeds of Trust

Updated 11/25:  On November 21, InfoBytes Blog (Buckley Sander LLP) posted an article titled Nevada District Court Bars Foreclosure Sale of First Lien HUD-Insured Mortgage.

Link to article

In a recent publication, Bob L. Olsen, attorney and Las Vegas partner for Snell and Winter discusses the state of Nevada adopting the Uniform Common Interest Ownership Act of 1982 and one particular provision enacted by the state (NRS 116.3116), which concerns HOA liens.

Lenders Beware: the Nevada Supreme Court Holds That Foreclosures of Homeowners’ Association Liens May Extinguish First Priority Deeds of Trust

Nevada has adopted the Uniform Common Interest Ownership Act of 1982 (the “Act”) which governs homeowners’ associations (“HOA”).  One particular provision of that Act, enacted by Nevada in 1991 and later amended, and codified as NRS 116.3116 (the “Statute”), states that HOA liens are “prior to all other liens and encumbrances on a unit” except for, among other liens:

(b) A first security interest on the unit recorded before the date on which the assessment sought to be enforced became delinquent . . . :

NRS 116.3116(2)(b) (emphasis added).

At first glance the Statute unconditionally subordinates the HOA’s lien to a first priority mortgage or deed of trust (hereinafter “first priority lien” and the holder, the “mortgage holder”) recorded against the unit before the date on which the assessment sought to be enforced became delinquent.  The Statute is not as simple as it seems because it later takes away part of the priority it gives to first priority lien holders.  The Statute goes on to state that:

The [HOA] lien is also prior to all security interests described in paragraph (b) to the extent of any [maintenance and nuisance-abatement] charges incurred by the association on a unit pursuant to NRS 116.310312 and to the extent of the assessments for common expenses [i.e., HOA dues] based on the periodic budget adopted by the association pursuant to NRS 116.31156 which would have become due in the absence of acceleration during the 9 months immediately preceding institution of an action to enforce the lien, unless federal regulations adopted by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association require a shorter period of priority for the lien. . . .

NRS 116.3116(2) (emphasis added).

Although the Statute has been in effect in Nevada since 1991, it had little effect until the recession, when defaults on both HOA dues and mortgage loans became common.  Since then, the Statute’s granting the mortgage holder priority over the HOA and then taking away part of that priority has spawned a great deal of litigation in Nevada.  Prior to the decision in SFR Investments Pool I, LLC v. U.S. Bank, N.A., (“SFR Investments”) lenders believed that the first priority lien survived a foreclosure sale by the HOA because of the express subordination provision of the Statute.  A number of real estate speculators, however, have recently challenged the lenders’ view by purchasing property at HOA foreclosure sales and then suing the holders of the first priority liens for quiet title and declaratory relief.  The real estate speculators’ position is that the sale of property at an HOA’s foreclosure sale extinguishes the first priority lien notwithstanding the express subordination contained in the Statute.

The Nevada Supreme Court was given an opportunity to interpret the Statute and rule on the competing priorities between the holder of a first priority lien and the purchaser of property at an HOA foreclosure sale in SFR Investments Pool I, LLC v. U.S. Bank, N.A., 130 Nev. Adv. Op. 75 (Sept. 18, 2014).  There the appellant, a real estate speculator, purchased property at an HOA foreclosure sale for pennies on the dollar and later sued U.S. Bank alleging that the foreclosure sale by the HOA extinguished U.S. Bank’s first priority lien.  The trial court dismissed the suit, holding that the HOA could not foreclose on its lien and extinguish the first priority lien unless it did so at a judicial foreclosure sale. SFR Investments Pool I, LLC (“SFR Investments”) then appealed to the Nevada Supreme Court.

The Nevada Supreme Court, in a four to three decision, reversed the trial court.  In doing so, the Court held that:

  1. The Statute splits the lien of the HOA into a “superpriority piece” and a “subpriority piece.”
  2. The superpriority piece of the HOA’s lien consists of the “last nine months of unpaid HOA dues and maintenance and nuisance-abatement charges,” and is prior to the first priority lien.
  3. The subpriority piece consists of “all other HOA fees or assessments” and is subordinate to the first priority lien.
  4. The superpriority piece of the lien could be foreclosed upon non-judicially and such a sale will extinguish the first priority lien.
  5. Provisions contained in the Conditions Covenants & Restrictions (“CC&Rs”) for the HOA that subordinate the entire HOA lien to a first priority lien, often referred to as “mortgagee protection clauses,” are unenforceable under the Act.

The majority was not persuaded by U.S. Bank’s argument that the foreclosure notices prepared by the HOA did not indicate that it was only foreclosing on the superpriority portion of the HOA’s lien, nor did those notices describe the amount of the superpriority.  Instead, the majority shifted the burden to the lender to pay what was demanded by the HOA by stating that “nothing appears to have stopped U.S. Bank from determining the precise superpriority amount in advance of the sale or paying the entire amount and requesting a refund of the balance.”

The majority stated that it was premature to rule on U.S. Bank’s arguments that the foreclosure by the HOA deprived it of due process of law and declined to address U.S. Bank’s argument that the foreclosure by the HOA was commercially unreasonable.

The three dissenting justices would have affirmed the trial court.  They interpreted the Act to require an HOA to judicially foreclose upon a unit in order to extinguish a first priority lien.  The dissent also noted that a nonjudicial foreclosure deprived the mortgage holder of the opportunity to “determine whether an association is even foreclosing on superpriority portions of its lien such as to prompt it to purchase the property at the association’s sale.”  It also noted that the majority’s holding may leave the former owner of the property liable for the entire amount of the first priority mortgage or deed of trust without any “mechanism by which to obtain the property’s value as an offset against the amount still owed.”

It is important to note that the appeal was from an order dismissing SFR Investment’s complaint for failing to state a claim for relief.  Thus, the Nevada Supreme Court did not hold that the real estate speculator obtained title to the property free and clear of U.S. Bank’s loan, nor did it hold that the foreclosure sale conducted by the HOA could not be set aside by the trial court.  Instead, it remanded the matter for further proceedings. The Nevada Supreme Court also noted on several occasions that the record had not been adequately developed.  Thus, SFR Investments is far from the last word on priority disputes.

There are a number of unresolved issues related to the Statute and the Court’s ruling in SFR Investments.  Those issues include, but are not limited to, the following:

  1. What happens if the mortgage holder tenders payment of the superpriority portion of the lien and the tender is rejected?  In our experience, many of the collection agencies that HOAs employ to foreclose on HOA liens refuse to accept a tender unless the mortgage holder pays everything that the HOA alleges it is owed regardless of whether it is the superpriority piece or the subpriority piece of the lien. 
  2. Does the purchase of the property at the HOA foreclosure sale have priority over the mortgage holder if the HOA simultaneously forecloses on the subpriority piece of the lien?  HOAs typically foreclose on the HOA’s entire lien, not just the superpriority piece of those liens.  The appeals court in the District of Columbia, which has a similar statute, recently upheld the priority of nonjudicial HOA foreclosure sale but in that case, unlike the Nevada case, the HOA only foreclosed on the superpriority piece of the HOA’s lien.  Chase Plaza Condominium Association, Inc. v. JP Morgan Chase Bank, N.A., 2014 WL 4250949 (D.C. App. August 28, 2014) (unpublished).
  3. Is a foreclosure sale conducted by an HOA that is not strictly in compliance with the Act void or voidable?
  4. Is the purchaser of property at an HOA sale, which likely paid a small fraction of the value of the property, a bona-fide purchaser for value?
  5. Can the sale of property by an HOA be avoided by a court because it was commercially unreasonable, a fraudulent conveyance or for inadequate consideration?
  6. Can the sale of property by an HOA be avoided by the holder of a first priority lien because it was not given adequate notice or due process of law?
  7. Does the Nevada Supreme Court’s construction of the Act in SFR Investments conflict with the duties and obligations of lenders, Nevada’s public policy to keep homeowners in their homes, and the legislative intent set forth in Nevada’s foreclosure mediation statute and the Homeowner’s Bill of Rights.

Please click here to view the article online.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally.



Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.


Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.



Sean Reddington

Sean Reddington is the new Chief Information Officer for Safeguard Properties LLC. Sean has over 15+ years of experience in Information Services Management with a strong focus on Product and Application Management. Sean is responsible for Safeguard’s technological direction, including planning, implementation and maintaining all operational systems

Sean has a proven record of accomplishment for increasing operational efficiencies, improving customer service levels, and implementing and maintaining IT initiatives to support successful business processes.  He has provided the vision and dedicated leadership for key technologies for Fortune 100 companies, and nationally recognized consulting firms including enterprise system architecture, security, desktop and database management systems. Sean possesses strong functional and system knowledge of information security, systems and software, contracts management, budgeting, human resources and legal and related regulatory compliance.

Sean joined Safeguard Properties LLC from RenPSG Inc. which is a nationally leading Philintropic Software Platform in the Fintech space. He oversaw the organization’s technological direction including planning, implementing and maintaining the best practices that align with all corporate functions. He also provided day-to-day technology operations, enterprise security, information risk and vulnerability management, audit and compliance, security awareness and training.

Prior to RenPSG, Sean worked for DMI Consulting as a Client Success Director where he guided the delivery in a multibillion-dollar Fortune 500 enterprise client account. He was responsible for all project deliveries in terms of quality, budget and timeliness and led the team to coordinate development and definition of project scope and limitations. Sean also worked for KPMG Consulting in their Microsoft Practice and Technicolor’s Ebusiness Division where he had responsibility for application development, maintenance, and support.

Sean is a graduate of Rutgers University with a Bachelor of Arts and received his Masters in International Business from Central Michigan University. He was also a commissioned officer in the United States Air Force prior to his career in the business world.


General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard and oversees the legal, human resources, training, and compliance departments. Linda’s responsibilities cover regulatory issues that impact Safeguard’s operations, risk mitigation, enterprise strategic planning, human resources and training initiatives, compliance, litigation and claims management, and mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans over 20 years, and Linda’s experience covers regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.


Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.


AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.


AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.


AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.


AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.


AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.


Assistant Vice president of Application Development

Steve Goberish

Steve Goberish, is the assistant vice president of application development for Safeguard. He is responsible for the maintenance and evolution of Safeguard’s vendor systems ensuring high-availability, security and scalability while advancing the vendor products’ capabilities and enhancing the vendor experience.

Prior to joining Safeguard, Steve was a senior technical architect and development manager at First American Title Insurance, a publicly held title insurance provider based in southern California, in addition to managing and developing applications in multiple sectors from insurance to VOIP.

Steve has a bachelor’s degree from Kent State University in Ohio.