Today, the U.S. Court of Appeals for the Ninth Circuit issued a significant decision in favor of lenders and mortgage servicers fighting off claims that their mortgage liens were extinguished by Nevada homeowners associations’ foreclosures from 2010 to 2014. In Berezovsky v. Moniz, the court held that the Federal Foreclosure Bar found in the Housing and Economic Recovery Act of 2008 preempted state law so as to bar an HOA’s foreclosure under Nevada Revised Statute 116.3116 from eliminating a security interest when a Government Sponsored Enterprise (such as Fannie Mae or Freddie Mac) owned the underlying mortgage loan. The court specifically rejected arguments that the Federal Foreclosure Bar did not apply in the Nevada HOA foreclosure context and that the Federal Housing Finance Agency (which has served as the conservator for Fannie Mae and Freddie Mac since 2008) had implicitly consented to the HOA’s foreclosures causing the elimination of the Freddie Mac security interest in question. The court also held that the fact that Freddie Mac’s ownership of the underlying mortgage loan was not apparent from the recorded chain of assignments of the deed of trust was inconsequential, as Nevada law does not require disclosure of the owner of a promissory note secured by a deed of trust.
The Berezovsky decision represents a resounding win for lenders and servicers of Freddie Mac and Fannie Mae loans. As a published decision, Berezovsky is binding precedent in federal court in the Ninth Circuit and should dictate judgments in favor of the lenders and servicers of Freddie Mac and Fannie Mae loans in all open litigation, provided that the lenders and servicers adequately prove the GSE’s ownership of the underlying mortgage loan at the time of the HOA’s foreclosure sale. Berezovsky should also serve as highly persuasive precedent on a question of federal law for the Nevada Supreme Court, as it considers the same questions about the application of the Federal Foreclosure Bar.