A federal appeals court said an older version of a Nevada law that stripped lenders of their first deed of trust when a homeowners' association forecloses on a property is unconstitutional.

In a 2-1 decision, the Ninth Circuit Court of Appeals vacated a district court decision in the case Bourne Valley Court Trust v. Wells Fargo, which allowed the plaintiff in that case to change the title to a property it purchased in a foreclosure sale from an HOA. The court's decision could set precedent for a number of similar cases in Nevada regarding HOA liens and foreclosures.

The case centered on the notice scheme set up in a prior version of the state's statute pertaining to HOA liens. At the time the foreclosure occurred, the statute required an HOA to alert a lender of its intention to foreclose on a property only when a lender had actively requested such notice.

While this will not affect actions made after 2015, attorneys with the mortgage banking group at the law firm Ballard Spahr said the court's decision will still have major ramifications.