Nevada Supreme Court Rules Bank Tender Defeats HOA Superpriority Lien

As lenders and servicers continue to litigate in Nevada’s state and federal courts about the effect of homeowner associations’ (HOAs) foreclosure sales, some questions have proven particularly sticky. What happens when a lender mails in a check to an HOA for its superpriority lien, but the check is refused? How about when the lender offers to pay the superpriority lien, but the HOA indicates that a payment will not be accepted?

 

In our last post touching on Nevada’s HOA superpriority lien litigation, we noted that the Nevada Supreme Court had not yet given the final word on these topics. Over the last few months, the court announced its final word—or, more accurately, two final words. In a pair of published opinions, the court held that lenders had preserved the priority of their deeds of trust when attempting to pay off the superpriority portion of an HOA’s lien.

 

The decision in Bank of America v. SFR Investments Pool 1 dealt with one typical fact pattern. After the HOA’s lien was recorded, a lender sent a check to the HOA’s foreclosure agent for the correct superpriority amount. However, the HOA’s agent rejected the check and (incorrectly) asserted that the lender was required to pay collection costs and fees to satisfy the superpriority portion. In an opinion issued on September 13, 2018, the Nevada Supreme Court confirmed what lenders had long argued: that this offer of payment with a check, regardless of the rejection, was a valid tender that discharged the superpriority portion of the lien. Although the HOA was free to foreclose on the remaining portion of its lien, the foreclosure would not wipe out the senior deed of trust.

 

The decision resolved several other issues in favor of lenders, finding (1) there was no requirement for a notice of tender to be recorded; (2) the bona fide purchaser doctrine was inapplicable, meaning that a sufficient tender preserves the deed of trust regardless of whether the HOA sale purchaser has notice of the tender; and (3) lenders did not have to deposit the tendered amount into a court or escrow account. The purchaser’s petition for rehearing was denied on November 13, 2018, leaving the opinion standing.

 

Even after the Bank of America decision, there remained uncertainty about another common fact pattern: a situation where a lender offered to pay the lien, but did not send a check for the right amount (presumably because it did not have a way to determine the HOA’s monthly assessment amount), and the HOA nonetheless rejected the offer. On March 7, 2019, the court held in Bank of America v. Thomas Jessup that an offer to pay a “yet-to-be-determined superpriority amount was not sufficient to constitute a valid tender.” However, the court ruled that the superpriority portion of the HOA’s lien had nevertheless still been discharged because the HOA’s agent indicated that it would have rejected a tender. Under the excuse of tender rule endorsed by the court, a rejected offer to pay has the same result as a rejected tender of payment. In either situation, a subsequent foreclosure by the HOA will not extinguish the first deed of trust.

 

The purchaser in Jessup petitioned the court for rehearing on March 26, so the decision is not yet final. But given that it was signed by three of the seven justices on the court, it would take a significant reversal of course for the court to grant rehearing or vacate the panel’s opinion.

 

Lenders who attempted to pay off at least the superpriority portion of HOA liens are now well-positioned to argue that their deeds of trust were preserved by tender or excuse of tender. These decisions from the Nevada Supreme Court resolve arguably the largest remaining issues in HOA lien litigation (at least the largest issues remaining after pro-lender rulings on the Federal Foreclosure Bar). Purchasers undoubtedly will attempt new defenses against these arguments, but these published opinions are clear wins for lenders.