In the wake of SFR Investments Pool 1, LLC v. U.S. Bank, N.A., in which the Nevada Supreme Court held that an HOA foreclosure sale may extinguish a first position deed of trust, lenders have advanced numerous arguments as to why the deed of trust in a particular case survived the sale. One such defense that has gained traction is the inadequacy of price doctrine.

Following SFR, lenders typically argued that the purchase price at an HOA sale must have been "commercially reasonable." The Nevada Supreme Court had, prior to SFR, held that the purchase price alone cannot invalidate a foreclosure sale. Rather, price plus "fraud, oppression, unfairness" together can make a foreclosure sale commercially unreasonable. 

More recently, lenders have moved away from the commercial reasonableness doctrine because the term "commercial reasonableness" derives from the Uniform Commercial Code (UCC), which governs personal property, not real property. In some states condominiums are considered personal property, but in Nevada, whether an HOA sale concerns the exercise of lien rights or contract rights is unsettled. Further, Nevada has adopted the Uniform Common Interest Ownership Act (UCIOA), which applies to community associations and condominium regimes. Thus, while the commercial reasonableness argument may provide a persuasive basis to unwind a sale in Nevada on equitable grounds, it is often rejected by Nevada trial courts as technically inapplicable to real property. 

An alternate and more promising avenue for setting aside a sale based on the disparity between the typically low price paid at an HOA sale and the market value of the property is rooted in the 1997 publication of the Restatement (Third) of Property: Mortgages. Specifically, Section 8.3 of the Restatement states that, pursuant to the "inadequacy of price" doctrine, a foreclosure sale may be invalidated based on price alone. The comments to the Restatement state that it would be an abuse of discretion for a court not to invalidate a foreclosure sale based on price alone when the purchase price is less than 20 percent of the fair market value of the property. Several state supreme courts have adopted the inadequacy of price doctrine and it does not appear that any state has explicitly rejected the doctrine post-publication of the 1997 Restatement. Thus, lenders in Nevada have argued that courts should invalidate homeowner association foreclosure sales when the purchase price is less than 20 percent of the fair market value. This would be true even if there is no other evidence of "fraud, oppression, or unfairness."

In January 2016, the Nevada Supreme Court issued an opinion in Shadow Wood Homeowners Ass’n, Inc. v. N.Y. Community Bancorp, Inc. In Shadow Wood, the Court found that the purchase price was 23 percent of the fair market value. The Court repeatedly cited to Section 8.3 of the Restatement, including the comment that a price below 20 percent of the fair market value is grossly inadequate and justifies setting aside the sale. However, the Court noted that since the purchase price was just more than 20 percent of the fair market value, then price alone could not invalidate the sale. This reasoning is consistent with the Section 8.3 of the Restatement, which states that "sale improprieties" are necessary when the purchase price is not grossly inadequate—i.e., if the purchase price is above 20 percent of the fair market value, then other sale improprieties are necessary to invalidate the sale such as chilled bidding, improper sale time or place, improper conduct by the lien holder, or defective notice.

The Nevada Supreme Court did not outright adopt the inadequacy of price doctrine in Shadow Wood because it did not have the opportunity to do so—the purchase price was 23 percent, which is not less than 20 percent. However, the Shadow Wood opinion omits and abandons the "commercial reasonableness" standard even though such language appeared in SFR. Via Shadow Wood, the Nevada Supreme Court has signaled a willingness to adopt Section 8.3 of the Restatement when clearly presented with an opportunity to do so.