130 Nev., Advance Opinion 75
IN THE SUPREME COURT OF THE STATE OF NEVADA
SFR INVESTMENTS POOL 1, LLC, A No. 63078
NEVADA LIMITED LIABILITY
COMPANY,
Appellant,
vs.
U.S. BANK, N.A., A NATIONAL SEP 1 8 2014
BANKING ASSOCIATION AS
TRUSTEE FOR THE CERTIFICATE
HOLDERS OF THE BANC OF HI CLE
AMERICA MORTGAGE PASS-
THROUGH CERTIFICATES, SERIES
2008-A,
Respondent.
Appeal from a district court order dismissing a complaint and
denying injunctive relief. Eighth Judicial District Court, Clark County;
Nancy L. Allf, Judge.
Reversed and remanded.
Howard Kim & Associates and Jacqueline A. Gilbert, Howard C. Kim, and
and Diana S. Cline, Henderson,
for Appellant.
Merman LLP and Ariel E. Stern and Natalie L. Winslow, Las Vegas,
for Respondent.
BEFORE THE COURT EN BANC.
SUPREME COURT
OF
NEVADA
(0) 1947A i4-3o a
OPINION
By the Court, PICKERING, J.:
NRS 116.3116 gives a homeowners' association (HOA) a
superpriority lien on an individual homeowner's property for up to nine
months of unpaid HOA dues. With limited exceptions, this lien is "prior to
all other liens and encumbrances" on the homeowner's property, even a
first deed of trust recorded before the dues became delinquent. NRS
116.3116(2). We must decide whether this is a true priority lien such that
its foreclosure extinguishes a first deed of trust on the property and, if so,
whether it can be foreclosed nonjudicially. We answer both questions in
the affirmative and therefore reverse.
I.
This dispute involves a residence located in a common-interest
community known as Southern Highlands. The property was subject to
Covenants, Conditions, and Restrictions (CC&Rs) recorded in 2000. In
2007 it was further encumbered by a note and deed of trust in favor of, via
assignment, respondent U.S. Bank, N.A. By 2010, the former
homeowners, who are not parties to this case, had fallen delinquent on
their Southern Highlands Community Association (SHHOA) dues and also
defaulted on their obligations to U.S. Bank. Separately, SHHOA and U.S.
Bank each initiated nonjudicial foreclosure proceedings.
Appellant SFR Investments Pool 1, LLC (SFR) purchased the
property at the SHHOA's trustee's sale, which took place on September 5,
2012. SFR received and recorded a trustee's deed reciting compliance with
all applicable notice requirements. In the meantime, the trustee's sale on
U.S. Bank's deed of trust had been postponed to December 19, 2012. Days
before then, SFR filed an action to quiet title and enjoin the sale. SFR
SUPREME COURT
OF
NEVADA
2
(0) 1947A 940P94
alleged that the SHHOA trustee's deed extinguished U.S. Bank's deed of
trust and vested clear title in SFR, leaving U.S. Bank nothing to foreclose.
The district court temporarily enjoined the U.S. Bank trustee's
sale pending briefing and argument on SFR's motion for a preliminary
injunction. Ultimately, the district court denied SFR's motion for a
preliminary injunction and granted U.S. Bank's countermotion to dismiss.
It held that an HOA must proceed judicially to validly foreclose• its
superpriority lien. Since SHHOA foreclosed nonjudicially, the district
court reasoned, U.S. Bank's first deed of trust survived the SHHOA
trustee's sale and was senior to the trustee's deed SFR received.
SFR appealed. The district court stayed U.S. Bank's trustee's
sale pending decision of this appeal.
A.
The HOA lien statute, NRS 116.3116, is a creature of the
Uniform Common Interest Ownership Act of 1982, § 3-116, 7 U.L.A., part
11 121-24 (2009) (amended 1994, 2008) (UCIOA), which Nevada adopted in
1991, 1991 Nev. Stat., ch. 245, § 1-128, at 535-79, and codified as NRS
Chapter 116, See NRS 116.001. One purpose of adopting a Uniform Act
like the UCIOA is "to make uniform the law with respect to [its] subject
[matter] among states enacting it." NRS 116.1109(2). Thus, in addition to
the usual tools of statutory construction, we have available the comments
of the National Conference of Commissioners on Uniform State Laws,
national commentary, and other states' cases to explicate NRS Chapter
116. 2A Norman J. Singer & Shambie Singer, Sutherland Statutory
Construction § 48:11, at 603-08 (7th ed. 2014); see Casey v. Wells Fargo
Bank, NA., 128 Nev. 290 P.3d 265, 268 (2012).
SUPREME COURT
OF
NEVADA
3
(0) 1947A 4E04
NRS 116.3116(1) gives an HOA a lien on its homeowners'
residences—the UCIOA calls them "units," see NRS 116.093—"for any
construction penalty that is imposed against the unit's owner. . , any
assessment levied against that unit or any fines imposed against the unit's
owner from the time the construction penalty, assessment or fine becomes
due." NRS 116.3116(2) elevates the priority of the HOA lien over other
liens. It states that the HOA's lien is "prior to all other liens and
encumbrances on a unit" except for:
(a) Liens and encumbrances recorded before
the recordation of the declaration [creating the
common-interest community] .
(b) A first security interest on the unit
recorded before the date on which the assessment
sought to be enforced became delinquent ; and
(c) Liens for real estate taxes and other
governmental assessments or charges against the
unit or cooperative.
NRS 116.3116(2) (emphasis added). If subsection 2 ended there, a first
deed of trust would have complete priority over an HOA lien. But it goes
on to carve out a partial exception to subparagraph (2)(b)'s exception for
first security interests:
The [1-10A] lien is also prior to all security
interests described in paragraph (b) to the extent
of any [maintenance and nuisance - abatement]
charges incurred by the association on a unit
pursuant to NRS 116.310312 and to the extent of
the assessments for common expenses [i.e., HOA
dues] based on the periodic budget adopted by the
association pursuant to NRS 116.3115 which
would have become due in the absence of
acceleration during the 9 months immediately
preceding institution of an action to enforce the
lien, unless federal regulations adopted by the
Federal Home Loan Mortgage Corporation or the
SUPREME COURT
OF
NEVADA
4
(0) 1947A AeD
Federal National Mortgage Association require a
shorter period of priority for the lien. . . . This
subsection does not affect the priority of
mechanics' or materialmen's liens, or the priority
of liens for other assessments made by the
association.
NRS 116.3116(2) (emphases added). 1
As to first deeds of trust, NRS 116.3116(2) thus splits an HOA
lien into two pieces, a superpriority piece and a subpriority piece. The
superpriority piece, consisting of the last nine months of unpaid HOA dues
and maintenance and nuisance-abatement charges, is "prior to" a first
deed of trust. The subpriority piece, consisting of all other HOA fees or
assessments, is subordinate to a first deed of trust.
NRS 116.3116 largely tracks section 3-116(a)-(0 of the 1982
UCIOA. 2 But it does not use the language in subsections (j) and (k) of
UCIOA § 3-116, which offer alternative HOA lien foreclosure provisions
for adaptation to local law. See 1982 UCIOA § 3116(j)(1) ("In a
condominium or planned community, the association's lien must be
FUCIOA § 3-116 differs from NRS 116.3116(1) in that it limits the
superpriority to six rather than nine months of unpaid dues, does not
make provision for Federal Home Loan Mortgage Corporation and Federal
National Mortgage Association regulations, and does not include
maintenance and nuisance-abatement charges in the superpriority lien.
2 NRS 116.3116(3) was added in 2013, 2013 Nev. Stat., ch. 552, § 7,
at 3788, and is unique. NRS 116.3116(11) was added in 2011, 2011 Nev.
Stat., ch. 389, § 49, at 2450 (renumbered from subsection 10 to 11 by 2013
Nev. Stat., ch. 552, §7 at 3789), and replicates subparagraph (I) of the
1994 version and subparagraph (m) of the 2008 version of the UCIOA. See
UCIOA § 3-116(m) (2008), 7 U.L.A., part IB 377 (2009); UCIOA § 3-1160
(1994), 7 U.L.A., part IB 571-72 (2009). See note 1 above for additional
variations.
SUPREME COURT
OF
NEVADA
5
(0) 1947A e
foreclosed in like manner as a mortgage on real estate [or by power of sale
under [insert appropriate state statutell."); id. § 3 - 116(k) (offering an
optional fast-track foreclosure method for cooperatives, which often carry
substantial debt service obligations). Instead, the Nevada Legislature
handcrafted a series of provisions to govern HOA lien foreclosures, NRS
116.31162 through NRS 116.31168, and refashioned 1982 UCIOA §§ 3 -
116(j)(2) and (3), concerning cooperatives, as NRS 116.3116(10).
To initiate foreclosure under NRS 116.31162 through NRS
116.31168, a Nevada BOA must notify the owner of the delinquent
assessments. NRS 116.31162(1)(a). If the owner does not pay within 30
days, the HOA may record a notice of default and election to sell. NRS
116.31162(1)(b). Where the UCIOA states general third-party notice
requirements, see 1982 UCIOA § 3 - 1160(4) ("In the case of foreclosure
under [insert reference to state power of sale statute], the association shall
give reasonable notice of its action to all lien holders of the unit whose
interest would be affected."), NRS 116.31168 imposes specific timing and
notice requirements.
"The provisions of NRS 107.090," governing notice to junior
lienholders and others in deed - of-trust foreclosure sales, "apply to the
foreclosure of an association's lien as if a deed of trust were being
foreclosed." NRS 116.31168(1). The HOA must provide the homeowner
notice of default and election to sell; it also must notify "[e]ach person who
has requested notice pursuant to NRS 107.090 or 116.31168" and "rainy
holder of a recorded security interest encumbering the unit's owner's
interest who has notified the association, 30 days before the recordation of
the notice of default, of the existence of the security interest." NRS
116.31163(1), (2). The homeowner must be given at least 90 days to pay
SUPREME COURT
OF
NEVADA
6
(0) 1947A 44WP40
off the lien. NRS 116.31162. If the lien is not paid off, then the BOA may
proceed to foreclosure sale. Id. Before doing so, the BOA must give notice
of the sale to the owner and to the holder of a recorded security interest if
the security interest holder "has notified the association, before the
mailing of the notice of sale of the existence of the security interest." NRS
116.311635(1)(b)(2); see NRS 107.090(3)(b), (4) (requiring notice of default
and notice of sale to "klach other person with an interest whose interest
or claimed interest is subordinate to the deed of trust").
NRS 116.31164 addresses the procedure for sale upon
foreclosure of an BOA lien and specifies the distribution order for the
proceeds of sale. A trustee's deed reciting compliance with the notice
provisions of NRS 116.31162 through NRS 116.31168 "is conclusive" as to
the recitals "against the unit's former owner, his or her heirs and assigns,
and all other persons." NRS 116.31166(2). And, "Wile sale of a unit
pursuant to NRS 116.31162, 116.31163 and 116.31164 vests in the
purchaser the title of the unit's owner without equity or right of
redemption." NRS 116.31166(3).
B.
U.S. Bank maintains that NRS 116.3116(2) merely creates a
payment priority as between the HOA and the beneficiary of the first deed
of trust. If so, then the dues and maintenance and nuisance - abatement
piece of the HOA lien does not acquire superpriority status until the
beneficiary of the first deed of trust forecloses, at which point, to obtain
clear, insurable title, the foreclosure-sale buyer would have to pay off that
piece of the BOA lien. But if the superpriority piece is a true priority lien,
then it is senior to the first deed of trust. As such, it can be foreclosed and
its foreclosure will extinguish the first deed of trust. See, e.g.,
Restatement (Third) of Prop.: Mortgages § 7.1 (1997) ("A valid foreclosure
SUPREME COURT
OF
NEVADA
(0) 1947A
of a mortgage terminates all interests in the foreclosed real estate that are
junior to the mortgage being foreclosed and whose holders are properly
joined or notified under applicable law.").
Nevada's state and federal district courts are divided on
whether NRS 116.3116 establishes a true priority lien. Compare 7912
Li mbwood Court Trust v. Wells Fargo Bank, NA., 979 F. Supp. 2d 1142,
1149 (D. Nev. 2013) ("[A] foreclosure sale on the HOA super priority lien
extinguishes all junior interests, including the first deed of trust"), Cape
Jasmine Court Trust v. Cent. Mortg. Co., No. 2:13-CV-1125-APG-CWH,
2014 WL 1305015, at *4 (D. Nev.,Mar 31, 2014) (same), and First 100.
LLC v. Burns, No. A677693 (8th Jud. Dist. Ct. May 31, 2013) (order
denying motion to dismiss) (same), with Bayview Loan Servicing, LLC v.
Alessi & Koenig LLC, 962 F. Supp. 2d 1222, 1225 (D. Nev. 2013) ("The
super -priority amount is senior to an earlier-recorded first mortgage in the
sense that it must be satisfied before a first mortgage upon its own
foreclosure, but it is in parity with an earlier-recorded first mortgage with
respect to extinguishment, i.e., the foreclosure of neither extinguishes the
other.") (emphasis in original); Weeping Hollow Ave. Trust v. Spencer, No.
2:13-CV-00544-JCM-VCF, 2013 WL 2296313, at *6 (D. Nev. May 24, 2013)
(same), and Diakonos Holdings; LLC v. Countrywide Home Loans, Inc.,
No. 2:12-CV-00949-KJD-RJJ, 2013 WL 531092, at *3 (D. Nev. Feb. 11,
2013) (similar).
Textually, NRS 116.3116 supports the Limbwood, Cape
Jasmine, and First 100 view that it establishes a true priority lien. NRS
116.3116(2) does not speak in terms of payment priorities. It states that
the HOA "lien ... is prior to" other liens and encumbrances "except . [a]
first security interest," then adds that, "The lien is also prior to [first]
SUPREME COURT
OF
NEVADA
8
(0) 1947A
security interests" to the extent of nine months of unpaid HOA dues and
maintenance and nuisance-abatement charges. Ibid. (emphases added).
"Prior" refers to the lien, not payment or proceeds, and is used the same
way in both sentences, a point the phrase "also prior to" drives home. And
"priority lien" and "prior lien" mean the same thing, according to Black's
Law Dictionary 1008 (9th ed. 2009): "A lien that is superior to one or more
other liens on the same property, usu. because it was perfected first."
The official comments to UCIOA § 3-116 confirm its text.
Payment priority proponents insist that the statute cannot mean what it
says because the result—a split lien, a piece of which has priority over a
first deed of trust—is unprecedented. Cf. Bayview Loan Servicing, 962 F.
Supp. 2d at 1226 (observing that, "the real estate community in Nevada
clearly understands the statutes to work the way the Court finds," that is
to say, as establishing only a payment priority). But the official comments
to UCIOA § 3-116 forthrightly acknowledge that the split - lien approach
represents a "significant departure from existing practice." 1982 UCIOA §
3-116 cmt. 1; 1994 & 2008 UCIOA § 3-116 cmt. 2. It is a specially devised
mechanism designed to "strike[] an equitable balance between the need to
enforce collection of unpaid assessments and the obvious necessity for
protecting the priority of the security interests of lenders." Id. The
comments continue: "As a practical matter, secured lenders will most
likely pay the 6 [in Nevada, nine, see supra note ii months' assessments
demanded by the association rather than having the association lbreclose
on the unit." Id. (emphasis added). If the superpriority piece of the HOA
lien just established a payment priority, the reference to a first security
SUPREME COURT
OF
NEVADA
9
(C) 1417A
U.S. Bank and the dissent argue that judicial foreclosure
should be required as a matter of policy because of the safeguards it
offers—notice and an opportunity to be heard, court supervision of the
sale, judicial review of the amount of the lien comprising the superpriority
piece, and a one-year redemption period. See NRS 40.430-.463; NRS
21.190- .210. But this argument assumes that requiring the superpriority
piece of an HOA lien to be judicially foreclosed will actually afford such
protections without need of further amendment to Chapter 116, and this is
far from clear. To allow nonjudicial foreclosure of the subpriority piece,
which is where the dissent would draw the judicial v. nonjudicial
foreclosure line, produces the same difficulties for the homeowners and
junior lienholders that are cited as policy reasons for requiring judicial
foreclosure of the superpriority piece of the lien; the only difference is the
benefit that would inure to first security holders under the dissent's
interpretation of Chapter 116. Surely, if the Legislature intended such an
unusual distinction, it would have said so explicitly, but it did not.
We recognize that "there has been considerable publicity
across the country regarding alleged abuse in the foreclosure process when
unit owners fail to pay sums due" their HOA, prompting amendments to
the UCIOA that "propose ] new and considerable restrictions on the
foreclosure process as it applies to common interest communities. -
Prefatory Note to the 2008 Amendments to the UCIOA, 7 U.L.A.. part IB,
at 225 (2009). But the choice of foreclosure method for HOA liens is the
Legislature's, and the Nevada Legislature has written NRS Chapter 116
to allow nonjudicial foreclosure of HOA liens, subject to the special notice
requirements and protections handcrafted by the Legislature in NRS
116.31162 through NRS 116.31168. Countervailing policy arguments
SUPREME COURT
OF
NEVADA
20
(0) 1947A e
exist in favor of allowing nonjudicial foreclosure, including that judicial
foreclosure takes longer to accom.plish, thereby delaying the common-
interest community's receipt of needed HOA funds. The consequences of
such delays can be "devastating to the community and the remaining
residents," who must either make up the dues deficiencies, arguably
unjustly enriching the delaying lender, or abandon amenities and
maintenance, thereby impairing the value of their homes. JEB, The Sir
Month "Limited Priority Lien," at 4-5. If revisions to the foreclosure
methods provided for in NRS Chapter 116 are appropriate, they are for
the Legislature to craft, not this court.
D.
U.S. Bank makes two additional arguments that merit brief
discussion. First, the lender contends that the nonjudicial foreclosure in
this case violated its due process rights. Second, it invokes the mortgage
savings clause in the Southern Highlands CC&Rs, arguing that this
clause subordinates SHHOA's lien to the first deed of trust. Neither
argument holds up to analysis.
1.
SFR is appealing the dismissal of its complaint for failure to
state a claim upon which relief can be granted. NRCP 12(b)(5). The
complaint alleges that "the HOA foreclosure sale complied with all
requirements of law, including but not limited to, recording and mailing of
copies of Notice of Delinquent Assessment and Notice of Default, and the
recording, posting and publication of the Notice of Sale." It further alleges
that, "prior to the HOA foreclosure sale, no individual or entity paid the
super-priority portion of the HOA Lien representing 9 months of
assessments for common expenses." In view of the fact that the
‘`requirements of law" include compliance with NRS 116131162 through
SUPREME COURT
OF
NEVADA
21
(0) 1947A 41p19,
NRS 116.31168 and, by incorporation, NRS 107.090, see NRS
116.31168(1), we conclude that U.S. Bank's due process challenge to the
lack of adequate notice fails, at least at this early stage in the proceeding.°
The contours of U.S. Bank's due process argument are
protean. To the extent U.S. Bank argues that a statutory scheme that
gives an HOA a superpriority lien that can be foreclosed nonjudicially,
thereby extinguishing an earlier filed deed of trust, offends due process,
the argument is a nonstarter. As discussed in 7912 Limbwood Court
Trust, 979 F. Supp. 2d at 1152:
Chapter 116 was enacted in 1991, and thus [the
lender] was on notice that by operation of the
statute, the [earlier recorded] CC&Rs might
entitle the HOA to a super priority lien at some
future date which would take priority over a [later
recorded] first deed of trust. . . Consequently,
the conclusion that foreclosure on an HOA super
priority lien extinguishes all junior liens,
including a first deed of trust recorded prior to a
notice of delinquent assessments, does not violate
[the lender's] due process rights.
Accord Nationstar Mtg., 2014 WL 3661398, at *3 (rejecting a due process
challenge to nonjudicial foreclosure of a superpriority lien).
U.S. Bank further complains about the content of the notice it
received. It argues that due process requires specific notice indicating the
°On a motion to dismiss, a court must take all factual allegations in
the complaint as true and not delve into matters asserted defensively that
are not apparent from the face of the complaint. See Buzz Stew, LLC v.
City of N Las Vegas, 124 Nev. 224, 227-28, 181 P.3d 670, 672 (2008).
Consistent with this standard, we note but do not resolve U.S. Bank's
suggestion that we could affirm by deeming SFR's purchase "void as
commercially unreasonable."
SUPREME COURT
OF
NEVADA
22
(0) 194Th 444DI91
amount of the superpriority piece of the lien and explaining how the
beneficiary of the first deed of trust can• prevent the superpriority
foreclosure sale. But it appears from the record that specific lien amounts
were stated in the notices, ranging from $1,149.24 when the notice of
delinquency was recorded to $4,542.06 when the notice of sale was sent.
The notices went to the homeowner and other junior lienholders, not just
U.S. Bank, so it was appropriate to state the total amount of the lien. As
U.S. Bank argues elsewhere, dues will typically comprise most, perhaps
even all, of the HOA lien. See supra note 3. And from what little the
record contains, nothing appears to have stopped U.S. Bank from
determining the precise superpriority amount in advance of the sale or
paying the entire amount and requesting a refund of the balance. Cf. In re
Medaglia, 52 F.3d 451, 455 (2d Cir. 1995) ("Mt is well established that due
process is not offended by requiring a person with actual, timely
knowledge of an event that may affect a right to exercise due diligence and
take necessary steps to preserve that right."). On this record, at the
pleadings stage, we credit the allegations of the complaint that SFR
provided all statutorily required notices as true and sufficient to
withstand a motion to dismiss. See 7912 Limbwood Court Trust, 979 F.
Supp. 2d at 1152-53.
2.
U.S. Bank last argues that, even if NRS 116.3116(2) allows
nonjudicial foreclosure of a superpriority lien, the mortgage savings clause
in the Southern Highlands CC&Rs subordinated SSHOA's superpriority
lien to the first deed of trust. The mortgage savings clause states that "no
lien created under this Article 9 [governing nonpayment of assessments],
nor the enforcement of any provision of this Declaration shall defeat or
render invalid the rights of the beneficiary under any Recorded first deed
SUPREME COURT
OF
NEVADA
23
(0) 1947A c42&()
of trust encumbering a Unit, made in good faith and for value." It also
states that "Mlle lien of the assessments, including interest and costs,
shall be subordinate to the lien of any first Mortgage upon the Unit."
NRS 116.1104 defeats this argument. It states that Chapter
116's "provisions may not be varied by agreement, and rights conferred by
it may not be waived . . . [e]xcept as expressly provided in" Chapter 116.
(Emphasis added.) "Nothing in [NRS] 116.3116 expressly provides for a
waiver of the HOA's right to a priority position for the HOA's super
priority lien." See 7912 Li mbwood Court Trust, 979 F. Supp. 2d at 1153.
The mortgage savings clause thus does not affect NRS 116.3116(2)'s
application in this case. 7 See Boulder Oaks Cmty. Ass'n v. B & J Andrews
Enters., LLC, 125 Nev. 397, 407, 215 P.3d 27, 34 (2009) (holding that a
CC&Rs clause that created a statutorily prohibited voting class was void
and unenforceable).
NRS 116.3116(2) gives an HOA a true superpriority lien,
proper foreclosure of which will extinguish a first deed of trust, Because
Chapter 116 permits nonjudicial foreclosure of HOA liens, and because
7 Coral Lakes Community Assn v. Busey Bank, NA., 30 So. 3d 579
(Fla. Dist. Ct. App. 2010), on which U.S. Bank relies, does not suggest a
different result. The CC&Rs that contained the subordination clause in
Coral Lakes were in place before the statute that limited the ability to
subrogate association liens took effect. Id at 581-84 & 582 n.3. The court
refused to enforce the statute because disturbing the prior, contractual
relationship "would implicate constitutional concerns about impairment of
vested contractual rights." Id. at 584. Here, however, the Southern
Highlands CC&Rs were recorded after the Legislature adopted and
enacted Chapter 116, so no similar concerns about impairment of any
party's vested contractual rights arise.
SUPREME COURT
OF
NEVADA
24
(0) 1947A 4079
SFR's complaint alleges that proper notices were sent and received, we
reverse the district court's order of dismissal. In view of this holding, we
vacate the order denying preliminary injunctive relief and remand for
further proceedings consistent with this opinion
•
Pickering
6( J.
We concur:
Hardesty
J.
Douglas
J.
Saitta
SUPREME COURT
OF
NEVADA
25
(0) 1947A
GIBBONS, C.J., with whom PARRAGUIR1{E and CHERRY, ii., agree,
concurring in part and dissenting in part:
While I concur with the majority that NRS 116.3116(2)
establishes a true superpriority for an HOA's lien, the enforcement of the
superpriority portion of the lien requires institution of an action. I would
conclude that this statutory language mandates that a civil judicial
foreclosure complaint be filed in order to extinguish a first deed of trust.
The Legislature's use of the term "action" indicates that a superpriority
lienholder must file a judicial foreclosure complaint
The phrase "institution of an action" may not inherently mean
the filing of a judicial action. See Black's Law Dictionary 800 (6th ed.
1990) (defining "institution" as title commencement or inauguration of
anything, as the commencement of an action"); id. at 28 (defining "action"
as "icionduct; behavior; something done; the condition of acting; an act or
series of acts"). But when used in "its usual legal sense," "action" means
"a lawsuit brought in a court." Id.; see also BP Am. Prod. Co. v. Burton,
549 U.S. 84, 91 (2006) ("The key terms in this provision---'action' and
'complaint'—are ordinarily used in connection with judicial, not
administrative, proceedings.").
In my view, NRS 116.3116 is using "action" in its usual legal
sense. Other subsections in NRS 116.3116 reference concepts specific to
judicial proceedings in relation to the word "action." NRS 116.3116(8)
states that a "judgment or decree in any action brought under this section
must include costs and reasonable attorney's fees for the prevailing party."
NRS 116.3116(11) states:
In an action by an association to collect
assessments or to foreclose a lien created under
this section, the court may appoint a receiver to
collect all rents or other income from the unit
SUPREME COURT
OF
NEVADA
(0) 1947A 440$49
alleged to be due and owing to a unit's owner
before commencement or during pendency of the
action . . . The court may order the receiver to
pay any sums• held by the receiver to the
association during pendency of the action to the
extent of the association's common expense
assessments . . . .
The way NRS 116.3116 uses action to indicate a court action demonstrates
that "institution of an action" means the filing of a judicial proceeding.
See Savage v. Pierson, 123 Nev. 86, 94 & n.32, 157 P.3d 697, 702 & n.32
(2007) ("[Hf a word is used in different parts of a statute, it will be given
the same meaning unless it appears from the whole statute that the
Legislature intended to use the word differently.").
To be sure, Chapter 116 does not consistently use action" to
mean a judicial action. See, e.g., NRS 116.2119 (the association's
declaration may require that the lenders who hold security interests in the
units "approve specified actions of the units' owners or the association as a
condition to the effectiveness of those actions" but it may not require
approval for certain specified nonjudicial "actions"); NRS 116.785(1)
(giving the Commission for Common-Interest Communities and
Condominium Hotels, if it finds a violation of NRS Chapter 116, the
authority to "take any or all of the following actions," and providing
various nonjudicial actions). But when Chapter 116 uses a phrase akin to
"institution of an action," it signals the filing of an action in court. See,
e.g., NRS 116.2124 (any person holding an interest in a common interest
community "may commence an action in the district court" to terminate
the community in the event of a catastrophe (emphasis added)); NRS
116.31088 (discussing rules for when the association is considering "the
commencement of a civil action" (emphasis added)); NRS 116.320(3) ("In
any action commenced to enforce the provisions of this section, the
SUPREME COURT
OF
NEVADA
2
(0) 94 7 A ceP
prevailing party is entitled to recover reasonable attorney's fees and
costs." (emphasis added)); NRS 116.795(1) (the regulatory agency "may
bring an action in . . . any court of competent jurisdiction" to enjoin further
continuing violations of Chapter 116 (emphasis added)). The specific
phraseology used in NRS 116.3116(2), "institution of an action,"
demonstrates that a judicial action, rather than just any enforcement
action, was what the Legislature contemplated as the method for
extinguishing a first deed of trust. See also Benson v. Zoning Bd. of
Appeals of Town of Westport, 873 A.2d 1017, 1021 - 24 (Conn App. Ct.
2005) (concluding that although the phrase "institution of an action" as
used in the statute at issue was ambiguous, the phrase had "never been
held to mean anything other than the filing of a civil action in court" and
that the legislature had not made it clear that other proceedings would
suffice)
I recognize that Chapter 116 gives the association the option
to enforce its lien through nonjudicial foreclosure by following the
procedures provided in NRS 116.31162 to 116.31168. The association may
even nonjudicially foreclose on its lien for maintenance and abatement
charges, charges that may be included in the superpriority portion of the
association's lien. See NRS 116.310312(4). But, as explained, the lien's
superpriority is tied to the "institution of an action to enforce the lien."
NRS 116.3116(2); NRS 116.310312(6). Thus, I would conclude that while
the association has the option to nonjudicially foreclose on its lien, it must
foreclose through judicial action in order to trigger the extinguishing effect
of the superpriority portion of its lien.
SUPREME COURT
OF
NEVADA
3
(0) 1947A e
The NRED advisory opinion should not be given deference because it
conflicts with NRS 116.3116 .t2is statutory language
This conclusion is in disagreement with the agency charged
with regulating and administering Chapter 116, the Nevada Department
of Business and Industry's Real Estate Division (NRED). See NRS
116.615; NRS 116.623; State, Dept of Bus. & Indus. v. Nev. Ass'n Servs.,
Inc., 128 Nev. , 294 P.3d 1223, 1227 (2012). NRED has interpreted
"action to enforce the lien" as being met by an association taking action to
nonjudicially foreclose on its lien pursuant to NRS 116.31162; thus,
according to NRED, an association need not file a civil judicial action to
trigger the superpriority portion of the association's lien under NRS
116.3116(2). See 13-01 Op. Dep't of Bus. & Indus., Real Estate Div. 17-18
(2012).
However, only agency interpretations that are within the
statutory language are afforded deference, Taylor v. State, Dep't of Health
& Human Servs., 129 Nev. , 314 P.3d 949, 951 (2013), and NRED's
interpretation is not within NRS 116.3116's language. Although NRS
Chapter 116's statutory scheme allows an association to nonjudicially
foreclose on its lien, it must judicially foreclose to trigger the superpriority
effect of its lien. See NRS 116.3116(2).
The Nevada Legislature intentionally departed from the model code
to require institution of a judicial action in NRS 116.3116
I also recognize that NRS 116.3116(2)'s proclamation that the
association must file a judicial action to trigger the superpriority effect of
its lien is at odds with the uniform act upon which the statute was based.
The Joint Editorial Board for Uniform Real Property Acts, which counsels
the Uniform Law Commission on uniform real estate laws, has stated that
an association may foreclose on superpriority portions of its lien and
SUPREME COURT
OF
NEVADA
4
(0) 1947A e
extinguish the first security "in the manner in which a mortgage is
foreclosed"; so, "an association may foreclose its lien by nonjudicial
proceedings if the state permits nonjudicial foreclosure." Joint Editorial
Board for Uniform Real Property Acts, The Six-Month "Limited Priority
Lien" for Association Fees Under the Uniform Common Interest
Ownership Act, at 9 n.8 (2013).
This interpretation is 'consistent with the UCIOA section upon
which NRS 116.3116 is based. The uniform act allows for an adopting
state to insert its authorized foreclosure method, whether it be judicial
foreclosure or by power of sale. But once the adopting state chooses a
method, it becomes mandatory:
(1) In a condominium or planned community, the
association's lien must be foreclosed in like
manner as a mortgage on real estate [or by power
of sale under [insert appropriate state statute]];
(2) In a cooperative whose unit owners' interests
in the units are real estate (Section 1-105), the
association's lien must be foreclosed in like
manner as a mortgage on real estate [or by power
of sale under [insert appropriate state statute]] [or
by power of sale under subsection (k)]; or
(3) In a cooperative whose unit owners' interests
in the units are personal property (Section 1-105),
the association's lien must be foreclosed in like
manner as a security interest under [insert
reference to Article 9, Uniform Commercial Code].
1982 UCIOA § 3-1160 (emphases added).
NRS 116.3116 departed from the uniform act in that it
permits, but does not mandate, nonjudicia.1 foreclosure. See NRS
116.3116(7) ("This section does not prohibit actions to recover sums for
which subsection 1 creates a lien or prohibit an association from taking a
deed in lieu of foreclosure."). And, NRS 116.3116(2), as well as NRS
SUPREME COURT
OF
NEVADA
5
(0) 1947A ea
116.310312(6), tie the "institution of an action" to the triggering of the
lien's superpriority effect. NRS 116.3116's variance from the uniform act
renders the Joint Editorial Board's report interpreting the uniform act's
intentions not informative on the proper reading of "institution of an
action" as used in NRS 116.3116(2). See Sallee v. Stewart, 827 N.W.2d
128, 142 (Iowa 2013) (citing 2B Norman J. Singer & J.D. Shambie Singer,
Statutes & Statutory Construction § 52:5, at 370 (rev. 7th ed. 2012), for
"noting that ordinarily 'when a legislature models a statute after a
uniform act, but does not adopt particular language, courts conclude the
omission was "deliberate" or "intentional," and that the legislature
rejected a particular policy of the uniform act").
Furthermore, the report post-dates the Legislature's adoption
of the UCIOA. And while preenactment official commentary to uniform
acts, including the UCIOA, generally may inform this court's
understanding of the Legislature's codification of that uniform act, see
Boulder Oaks Cmty. Assn v. B & J Andrews Enters., LLC, 125 Nev. 397,
405-06, 215 P.3d 27, 32-33 (2009) (considering the UCIONs official
comments when interpreting Nevada's codification of the uniform act),
this post-hoc commentary is not persuasive, especially in the face of
statutory language that states otherwise. Cf. Ybarra v. State, 97 Nev.
247, 249, 628 P.2d 297, 297-98 (1981) (noting that generally, "a statute
adopted from another jurisdiction will be presumed to have been adopted
with the construction placed upon it by the courts of that jurisdiction
befbre its adoption" (emphasis added)); 2B Norman J. Singer & J.D.
Shambie Singer, Statutes & Statutory Construction § 52:2 (rev. 7th ed.
2012) ("When the state of origin interprets a statute after the adopting
SUPREME COURT
OF
NEVADA
6
(0) 1907A 04V30
state statute has been enacted, courts do not presume the adopting state
also adopted the subsequent construction.").
Policy considerations
In my view, the Legislature's decision to require associations
to judicially foreclose their lien to extinguish the first security interest
alleviates potential problems that could arise under the majority's holding
that nonjudicial foreclosures are enough. As the majority points out, by
incorporating certain notice provisions from Chapter 107, Chapter 116
appears to mandate that the association mail the notice of default and
notice of sale to the first security holders who have recorded their security
interest when the association is foreclosing on its lien. NRS 116.31168(1);
NRS 107.090. But what the majority fails to adequately address is that
the association is not required to indicate in its notices that superpriority
portion of its lien being foreclosed on, let alone what the amount of the
superpriority portion is: the association's notice of delinquent assessment
and notice of default and election to sell need only state "the assessments
and other sums which are due in accordance with subsection 1 of NRS
116.3116." NRS 116.31162(1)(a); NRS 116.31162(1)(b); see also NRS
116.311635(3)(a) (notice of sale must provide "the amount necessary to
satisfy the lien"). Although the first security holder could prevent the
extinguishment of its interest by purchasing the property at the
association's foreclosure sale, see Carrillo v. Valley Bank of Nev., 103 Nev.
157, 158, 734 P.2d 724, 725 (1987), Keever v. Nicholas Beers Co., 96 Nev.
509, 515, 611 P.2d 1079, 1083 (1980), in the nonjudicial foreclosure
setting, first security interest holders have no means by which to
determine whether an association is even foreclosing on superpriority
portions of its lien such as to prompt it to purchase the property at the
association's sale. Thus, in my view, the majority fails to give adequate
SUPREME COURT
OF
NEVADA
7
(0) 1947A
consideration to the due process implications of its holding. Cf. Koteeki v.
Augusztiny, 87 Nev. 393, 395, 487 P.2d 925, 926 (1971) ("'(W)hen notice is
a person's due, process which is a mere gesture is not due process. The
means employed must be such as one desirous of actually informing the
absentee might reasonably adopt to accomplish it." (quoting Mullane v.
Cent. Hanover Bank & Trust Co., 339 U.S. 306, 315 (1950))).
Relatedly, after the first deed of trust loses its security in the
property pursuant to the association's foreclosure of its superpriority lien,
the former homeowner generally will be liable for the amount still owed oil
the debt. NRS 40.455. Under the majority's holding, in the nonjudicial
foreclosure setting, the owner will be left with no mechanism by which to
obtain the property's value as an offset against the amount still owed. For
example, even if the foreclosure-sale purchaser took the property for an
amount significantly lower than its fair market value, the owner would
not have an unjust enrichment action against that purchaser; a sale under
thefl nonjudicial foreclosure scheme for an association's lien "vests in the
purchaser the title of the unit's owner without equity or right of
redemption." NRS 116.31166(3). This also means that the owner, as well
as the first security, will have no right to redeem the property under the
majority's holding. NRS 116.31166(3); see also Bldg. Energetix Corp. v.
EHE, LP, 129 Nev. „ 294 P.3d 1228, 1233 (2013) (recognizing that
there is no right to redeem after a Chapter 107 nonjudicial foreclosure sale
because a sale under that chapter "vests in the purchaser the title of the
grantor and any successors in interest without equity or right of
redemption" (quoting NRS 107.080(5))).
SUPREME COURT
OF
NEVADA
8
(0) 1947A
But if the association follows the Legislature's directive and
forecloses through court action, see NRS 116.3116(2), then the rules
governing civil proceedings, see generally NRS Title 2, Chapters 10-22,
and specifically the rules governing actions affecting real property, as well
as the Nevada Rules of Civil Procedure, would govern. 1 A specific
protection that comes with judicial foreclosure is the one-year right of
redemption that is available to both the property owner and the otherwise
extinguished junior lienholders, which includes the first security interest
in this context. NRS 21.190; 21.200; 21.210; see also Bldg. Energetix
Corp., 129 Nev. at , 294 P.3d at 1233. If the owner or junior
lienholders pay what the purchaser at the judicial foreclosure sale paid to
acquire the property, plus any other statutorily required amounts, they
can redeem the property, NRS 21.200; 21.210; 21.220, allowing the
property's value to be applied to the first security interest's outstanding
loan amount. The full adjudication of the rights between the pertinent
parties and as to the property, including the association, the owner, and
the first security interest, as well as any other pertinent party, combined
1 NRS 40.430's "one action" rule for recovery of debt or enforcement
of rights secured by a mortgage or other lien upon real property would not
govern the association's judicial foreclosure action, as liens that arise
pursuant to an assessment under Chapter 116 are not considered a
"mortgage or other lien." NRS 40.433.
SUPREME COURT
OF
NEVADA
9
(0) 1947A em
with the statutory protections afforded with a judicial foreclosure, further
demonstrate that judicial foreclosure on an association's lien is necessary
to trigger its superpriority effect under NRS 116.3116(2).
AIIIP C.J.
Gibbo s
We concur:
Parraguirre
Cherry
al
SUPREME COUFtT
OF
NEVADA
10
(0) 1947A e