Ninth Circuit Holds Nevada HOA Statute Giving HOA Liens Superpriority Did Not Violate Takings Clause or Due Process Clause

The United States Court of Appeals for the Ninth Circuit recently affirmed a District Court’s dismissal of a lender’s claim, holding that the Nevada statute allowing for the HOA sale of a property that extinguished the lender’s deed of trust did not violate the Takings or Due Process Clauses.  See Wells Fargo Bank, N.A. v. Mahogany Meadows Ave. Tr., 2020 WL 6498000 (9th Cir. Nov. 5, 2020).   In 2008, the borrowers purchased a home with a loan from Wells Fargo, and recorded a deed of trust against the property.  In 2011, they stopped paying their HOA fees, and the HOA filed a lien and foreclosed.  The property was sold at public auction for $5,332, extinguishing Wells Fargo’s lien.  Wells Fargo then brought this action against the HOA and the purchaser claiming that the sale was invalid and that Wells Fargo’s lien remained on the property.  Wells Fargo claimed that the Nevada statute allowing HOA liens to take priority over previously-recorded deeds of trust violates the Takings Clause and the Due Process Clause.  The District Court dismissed the action.

On appeal, the Court affirmed.  First, the Court denied the claim under the Takings Clause.  The Court first found that the sale itself could not have violated the Takings Clause because it was not a state action.  Likewise, the enactment of the Nevada statute could not have violated the clause, because the statute was enacted in 1991 and this particular HOA’s covenants, conditions, and restrictions were recorded in 2003.  Thus, “[t]he  interest Wells Fargo is asserting—that is, the right to maintain its lien unimpaired by a later HOA lien—was ‘not part of [its] title to begin with.’”  Second, the Court denied the claim under the Due Process Clause, finding that there was no dispute that Wells Fargo received actual notice of the sale, so its due process rights were not violated.  In rejecting this claim, the Court referred to its prior decision in Bank of Am., N.A. v. Arlington W. Twilight Homeowners Ass’n, 920 F.3d 620 (9th Cir. 2019), in which it found the Nevada statute did not violate the Due Process Clause.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Anthony Lombardo at alombardo@riker.com.