HOA Super-Priority Lien Law Preempted by Federal Statute

Given the significant role Fannie Mae and Freddie Mac have in the national housing market, it is unsurprising that both have become embroiled in the Nevada HOA super-priority lien litigation. Since July 2008 – well before the Nevada Supreme Court held that an HOA’s foreclosure on its super-priority lien could extinguish a first deed of trust – Fannie Mae and Freddie Mac have been in the conservatorship of the Federal Housing Finance Agency (FHFA). The Housing and Economic Recovery Act of 2008 (Federal Foreclosure Bar), which created FHFA, includes a provision commonly referred to as the Federal Foreclosure Bar, which provides that FHFA’s property shall not be subject to foreclosure without FHFA’s consent. Fannie Mae and Freddie Mac, as well as loan servicers acting on their behalf, have long argued that the Federal Foreclosure Bar preempts the Nevada HOA super-priority lien statute and prevents HOA foreclosure sales from extinguishing the interests of Fannie Mae and Freddie Mac. While the Ninth Circuit already held that the Federal Foreclosure Bar preempts Nevada’s HOA super-priority lien statute, the Nevada Supreme Court had not weighed in until now. On March 21, 2018, the Nevada Supreme Court released a unanimous, en banc opinion in Saticoy Bay LLC Series 9641 Christine View v. Federal National Mortgage Association, siding with the Ninth Circuit on federal preemption.

The case arose after Saticoy Bay purchased the subject property at an HOA foreclosure sale and filed suit against Fannie Mae and others, seeking to quiet title. The trial court granted Fannie Mae’s motion for summary judgment and held that the Federal Foreclosure Bar preempts the Nevada HOA super-priority lien statute. Saticoy Bay appealed and argued (1) that Fannie Mae lacked standing to assert the Federal Foreclosure Bar because the statute protected the property of FHFA and FHFA was not a party to the action, and (2) the Federal Foreclosure Bar did not actually preempt the state law.

The Nevada Supreme Court affirmed the trial court’s judgment, holding that because the Nevada HOA super-priority lien statute allowed an HOA to extinguish Fannie Mae’s interest without the consent of FHFA, it directly conflicted with Congress’ clear goal of protecting Fannie Mae’s property while under FHFA’s conservatorship. The court also confirmed that Fannie Mae has standing to assert the Federal Foreclosure Bar. This decision on standing follows the court’s earlier decision in Nationstar Mortgage, LLC v. SFR Investments Pool 1, LLC that the servicer of a loan owned by Fannie Mae or Freddie Mac has standing to raise the Federal Foreclosure Bar in defense of Fannie Mae’s and Freddie Mac’s property interests.

Importantly, the court rejected Saticoy Bay’s argument that FHFA implicitly consented to extinguishment of the deed of trust by failing to act to prevent the HOA foreclosure sale. Citing the Ninth Circuit’s Berezovsky opinion, the court held that FHFA must affirmatively consent to extinguishment and is not required to actively resist foreclosure.

While this decision is unpublished, it seems to provide an indication as to how the Nevada Supreme Court will rule on the Federal Foreclosure Bar in future published opinions.