The Nevada Supreme Court has upheld the constitutionality of Nevada's pre-2015 statutory scheme for homeowners association (HOA) foreclosures. This decision contradicts the Ninth Circuit Court of Appeals' conclusion that the same statutory scheme violates due process.

Appellant Saticoy Bay LLC Series 350 Durango 104 (Saticoy) purchased a property at an HOA foreclosure sale. After the sale, Saticoy filed a quiet title action for, among other things, a declaration that the HOA foreclosure of its superpriority lien extinguished a deed of trust previously recorded against the property. Wells Fargo, the beneficiary of the deed of trust, moved to dismiss the complaint. Wells Fargo argued that NRS 116.3116 et seq., the statute that authorized the HOA's foreclosure, violated the Due Process Clause and the Takings Clause of the Nevada and U.S. Constitutions.

The district court agreed that NRS 116.3116 et seq. violated due process and dismissed the complaint, and Saticoy appealed. After considering both of Wells Fargo's constitutional arguments, the Nevada Supreme Court reversed and remanded. It held that an HOA foreclosure did not involve sufficient state action to implicate the 14th Amendment or the Takings Clause.

The court first addressed the state action requirement for due process, applying the two-part test set forth by the U.S. Supreme Court in Lugar v. Edmondson Oil Co.—a deprivation of life, liberty or property was caused by the exercise of a right or privilege created by the state; and the party charged with the deprivation was a state actor. While the Nevada Legislature created the HOA's superpriority lien, the party actually charged with the deprivation—i.e., the HOA—was not a state actor. "[T]he Legislature's mere enactment of NRS 116.3116 does not implicate due process absent some additional showing that the state compelled the HOA to foreclose on its lien, or that the state was involved with the sale."

Next, the court held that NRS 116.3116 et seq. did not constitute a regulatory taking because the statute did not have an economic impact on a mortgagee; did not interfere with any legitimate investment-backed expectation; and merely altered the priority of certain liens.

Significantly, Saticoy contradicts the Ninth Circuit's conclusion that NRS 116.3116 et seq. violates due process. While the Nevada Supreme Court acknowledged the Ninth Circuit's Bourne Valley decision in a footnote, it declined to follow the federal court's holding that the statutory scheme implicated state action. The Saticoy court also declined to address whether NRS 116.3116 et seq. requires constitutionally sufficient notice. It thus remains to be seen whether the Nevada Supreme Court's interpretation of the state statute's notice requirements also will conflict with the interpretation of the federal courts.

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