In a divided decision, the Ninth Circuit held that Nevada's homeowner association lien statute (Nevada Revised Statutes ยง 116.3116) was facially unconstitutional for lack of a notice provision to lenders in violation of the Fourteenth Amendment's Due Process Clause. The majority erred for two primary reasons: (1) no state action or state actor was involved in the HOA foreclosure sale and (2) even if state action or state actor were involved, the statute expressly incorporates provisions requiring written notice to lenders.
This case is of substantial importance, involving the ability of a community association to maintain common property and deliver essential services. Such services benefit all properties in the community, and protect the value of all parties having an interest in the properties, including all lenders with loans in the community. Homeowners rely on their associations to be financially stable and able to carry out their functions; in turn, associations rely on effective means to recover delinquent assessments to achieve financial stability.
Beyond the parties here, this case affects homeowners in all community associations in the 21 states, the District of Columbia and Puerto Rico that have adopted state lien priority statutes similar to the Nevada statute; approximately half of those states have similar notice provisions. This approach to association lien priorities is modeled on the Uniform Condominium Act ("UCA"), Uniform Common Interest Ownership Act ("UCIOA"), and Uniform Planned Community Act ("UPCA"), all drafted by the Uniform Law Commission (formerly known as the National Conference of Commissioners on Uniform State Laws). This ruling may affect approximately 66.7 million Americans because over twenty percent (20%) of the U.S. population resides in a community association.
Prior Rulings: United States Court of Appeals for the Ninth Circuit
Brief Authors: Ms. Jaime Fraser Carr, Esq. and Mr. Marvin J. Nodiff, Esq.