While an amended Nevada Senate bill does not change the Nevada Supreme Court’s seminal holding that an association lien is a true priority lien that, when properly foreclosed, may extinguish a first deed of trust, the new law fortifies the ability of secured creditors to protect their security interests effective Oct. 1, 2015. 

Senate Bill 306, approved by Governor Brian Sandoval on May 27, 2015, for example:

  • Lists specific, maximum amounts of costs that a homeowners’ association may include in the super-priority portion of its lien;
  • Requires the notice of default and election to sell to state how the association calculates its super-priority lien amount;
  • Expressly requires homeowners’ associations to provide notice to all secured creditors of record;
  • Allows secured interest holders to cure a delinquency until five days before an association foreclosure sale; and,
  • Provides secured interest holders with a right of redemption following an association foreclosure sale.  

Schedule of Costs

Under Senate Bill 306, a homeowners’ association may now include certain costs of collection as part of its super-priority lien. These costs are limited, however, to amounts actually incurred by the association, up to specific maximum amounts set forth in the bill. 

Notice Contents

In a homeowners’ association’s notice of default and election to sell, the association must now identify the total deficiency in payment and provide a separate statement of the super-priority amount of the lien; the portion of the super-priority lien amount attributable to delinquent assessments; the portion of the super-priority lien amount attributable to abating a public nuisance or maintaining the home’s exterior; and, the super-priority lien amount attributable to the costs of enforcing the association’s lien. 

This change affects only the notice of default and election to sell. The Legislature did not change the content requirements for the notice of sale, which must include only “the amount necessary to satisfy the lien as of the date of the proposed sale,” without a further breakdown of how the amount was calculated or whether the amount encompasses the super-priority or non-priority portion of the association’s lien.    

Notice to All Secured Creditors of Record

Before it may foreclose, a homeowners’ association must mail a copy of the notice of default and election to sell and a copy of the notice of sale to each holder of a record security interest that encumbers the property upon which the association seeks to foreclose. The association (or its foreclosure sale agent) must then execute and record, before a sale, an affidavit stating that the affiant reviewed a trustee sale guarantee, “similar product,” or “the business records of the association or the person conducting the sale;” the name of each secured party to which the association mailed the notice of default and election to sell and notice of sale; and, the mailing address used for each secured interest holder. 

To ensure notice is sent to the secured creditor’s correct address, Senate Bill 306 further requires a financial institution that is the beneficiary of a deed of trust under a residential mortgage loan to provide the Division of Financial Institutions with a contact address. A homeowners’ association, in turn, must send any notice of default and election to sell and notices of sale to this contact address, which the Division of Financial Institutions must maintain on its website. 

Right to Cure

A secured creditor may, up to five days before the foreclosure sale date, preserve its lien by curing the delinquent assessments. To cure, the creditor must pay the foreclosing homeowners’ association the amount of the association’s lien that is prior to the creditor’s security interest. When a secured creditor pays off a homeowners’ association lien that has priority over the secured creditor’s lien, the amount paid becomes a debt due from the homeowner to the secured creditor.   

After the secured creditor satisfies the association’s prior lien, the association must record a “record of such satisfaction” at least two days before the sale date. The association then may proceed with a foreclosure sale for any remaining portions of its lien, but the sale will not extinguish the curing creditor’s interests in the property. 

Right to Redeem

Senate Bill 306 also provides secured creditors with a right to redeem the property for up to 60 days after a homeowners’ association foreclosure sale. Unlike the right to cure, which merely maintains the creditor’s lien, the right to redeem allows the creditor to obtain title to the property. 

To redeem the property, the holder of a recorded security interest must pay the sale purchaser the recorded foreclosure sale purchase price and 1 percent per month interestany assessment, taxes, or payments toward liens created before the purchase and which the purchaser paid after the purchase, with interest; if the purchaser is also a creditor with a lien prior to that of the redeeming creditor, the amount of such prior lien with interest; and, the “reasonable amount” spent by the purchaser for “reasonably necessary” maintenance and repairs.

The redeeming party also must pay the amount of any liens prior to the redeeming party’s lien (other than the association’s lien). After making these required payments, the redeeming party must serve the purchaser and the homeowners’ association (or its foreclosure sale agent) with a notice of redemption, together with a certified copy of the deed of trust, any assignments necessary to show the redeeming creditor’s interest in the property, and an affidavit showing the amount actually due on the redeeming creditor’s lien. The association (or its sale agent) shall then deliver to the redeeming creditor a deed without warranty that conveys all title of the unit’s owner to the redeeming creditor.   

Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on compliance with state debt collection laws and defend clients in lawsuits and enforcement matters. To assist clients in responding proactively to the documentation-related challenges being faced by the debt collection industry and creditors attempting to collect their own debts, the Group has formed a Collection Documentation Task Force.

Attorneys in Ballard Spahr’s Real Estate Finance and Capital Markets Group advise financial institutions, specialty lenders, private equity firms, real estate developers and investment companies, master and special servicers and receivers in all facets of real estate debt and equity transactions including distressed matters and enforcement actions involving a broad range of structures and project types.

If you have questions, please contact Consumer Financial Services Group Practice Leader Alan S. Kaplinsky at 215.864.8544 orkaplinsky@ballardspahr.com, Abran Vigil at 702.868.7523 orvigila@ballardspahr.com, Joel E. Tasca at 215.864.8188 or tasca@ballardspahr.com, Lindsay C. Demaree at 702.868.7514 or demareel@ballardspahr.com, or Real Estate Finance and Capital Markets Practice Leader Dominic J. De Simone at 215-864-8704 or desimone@ballardspahr.com.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

 

 

 

 

 

 

 

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