The United States District Court for the District of Nevada recently held that a lender’s claim regarding an HOA lien was not covered by its title insurance policy because the lien was recorded after the policy date. See Deutsche Bank Nat’l Tr. Co. as Tr. for Am. Home Mortg. Inv. Tr. 2007-2 v. Fid. Nat’l Title Ins. Co., 2020 WL 1638808 (D. Nev. Apr. 2, 2020). In the case, the homeowners purchased their property in 2006. Plaintiff’s assignor provided the homeowners with a loan and received a deed of trust on the property, and defendant’s predecessor issued a title policy to the lender in connection with the loan. In 2010, the HOA recorded a notice of delinquent assessment lien against the property and sold the property in 2014. Plaintiff filed a quiet title action against the purchaser and filed a claim with defendant because the purchaser was claiming an interest in the property superior to plaintiff’s deed of trust. Defendant denied the claim. Plaintiff brought this action alleging breach of contract, among other claims, and defendant moved to dismiss.
The Court granted the motion to dismiss. Exclusion 3(d) of the title insurance policy excludes coverage for loss or damage by reason of defects that attach or are created subsequent to the date of the policy. In this case, the lien was recorded in 2010, four years after the policy date. Citing Wells Fargo Bank, N.A. as Tr. for Option One Mortg. Loan Tr. 2007-5 Asset-Backed Certificates, Series 2007-5 v. Fid. Nat’l Ins. Co., 2019 WL 5578487 (D. Nev. Oct. 29, 2019), the Court held that the HOA’s recording of its Covenants, Conditions and Restrictions, which allowed it to file the lien, did not mean that the defect existed before the policy date, and that the defect did not exist until the HOA recorded its lien. Likewise, the Court found that an endorsement that insures against loss or damage which the insured sustains by reason of “[c]ovenants, conditions or restrictions under which the lien of the mortgage . . . can be cut off, subordinated, or otherwise impaired” does not provide coverage. The title defect did not occur because of the Covenants, Conditions and Restrictions, but “occurred as a function of Nevada law,” specifically the Nevada Supreme Court finding HOA liens have superiority in 2014. Finally, the Court dismissed the remaining claims based on the fact that there is no coverage.