Lien Back: Why Homeowner Association Super-Priority Lien Statutes Should Be Repealed
35 Pages Posted: 24 Jan 2017 Last revised: 3 May 2017
Date Written: 2017
Who should have priority in a home foreclosure proceeding? Naturally, one might say the bank or mortgage company that provided the loan to build or purchase a home should have priority. Most states follow this common-sense approach to property ownership and foreclosure rights. Twenty-two states, however, grant Homeowner Associations (“HOAs”) “super-priority” status in foreclosure proceedings, meaning debt owed to HOAs has priority over any debt owed to the mortgage provider. Some state statutes even grant HOAs the ability to foreclose on a home, sell it at auction, and wipe out the mortgage providers secured interest entirely.
Recently, the Ninth Circuit in Bourne Valley Court Trust v. Wells Fargo found that Nevada’s version of the HOA super-priority statute was “facially unconstitutional.” However, Nevada’s Supreme Court in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage reached a different conclusion, holding the statute is constitutional. These alternative rulings create a split in state and federal law, and are a troubling sign of court’s difficulties in interpreting these often vague and ambiguous statutes. Many states, like Nevada, modeled their respective HOA super-priority statutes using the same language and recommendations from the Uniform Law Commission, leaving other states subject to potential constitutionality attacks. Additionally, these statutes have led to severe economic consequences in both the mortgage and housing industries through increases in mortgages rates and the destabilization of the housing market.
This Article is the first to examine the implications and consequences of the Bourne Valley and Saticoy Bay decisions. Additionally, this Article is the first to propose repealing HOA super-priority statutes and replacing the statutes with legislation that attaches the HOA debt to the person, and not the property. Alternatively, this Article includes solutions to both substantively and procedurally enhance current HOA super-priority statutes to ensure that the mortgage provider’s interest and housing market are adequately protected.
Keywords: Homeowner Association, HOA, Super-Priority Lien, Lien, Lien Priority, Foreclosure, Mortgage Providers, Banking Industry, Statute Repeal, Bourne Valley Court Trust v. Wells Fargo Bank, Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage
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