We previously reported on the Nevada Supreme Court’s decision in SFR Investments Pool 1, LLC. v. U.S. Bank, N.A., holding that a homeowners association (HOA) lien is a true super-priority lien that upon foreclosure extinguishes a first deed of trust. This decision came as a surprise to many, including the district court judges who sharply disagreed on the proper interpretation of Nevada's statute and whether it in fact provided for a true super-priority lien. Yet, SFR left many unanswered questions, including whether its core holding—that foreclosure of an HOA lien could extinguish a first deed of trust—applies retroactively.  That question may soon be answered.

The Nevada Supreme Court recently accepted a certified question of law from the U.S. District Court for the District of Nevada which asks the Nevada Supreme Court to determine whether the holding in SFR applies retroactively to foreclosures occurring prior to the date of that decision. The certified question in Christiana Trust v. K&P Homes comes as a result of the District Court ruling that SFR decision does not apply retroactively.

In Chevron Oil Co. v. Huson, the U.S. Supreme Court recognized limitations on the retroactive application of judicial rulings as a matter of common law equity. Under the Huson factors:

• "the decision to be applied non-retroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed;"
• the court must "weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation;" and
• courts consider whether retroactive application "could produce substantial inequitable results."

The District Court in Christiana Trust agreed with the lender's argument that the SFR decision did not apply retroactively, and so dismissed the quiet title complaint of the plaintiff HOA sale purchaser. While the District Court declined to reconsider its ruling, it granted the purchaser's motion to certify the issue to the Nevada Supreme Court. 

The parties recently submitted their briefs to the Nevada Supreme Court addressing retroactivity and, specifically, the three Huson factors. According to the lender, the SFR decision was not clearly foreshadowed because all the relevant industry actors treated the HOA lien as a payment priority not capable of extinguishing a first deed of trust and no Nevada courts prior 2012 had ever addressed this issue. The lender noted further that when the courts were finally presented with the issue, at least 23 judges in Nevada held that an HOA lien did not extinguish a first deed of trust.

In contrast, the HOA sale purchaser argued that the SFR decision was foreseeable, especially in light of the Nevada Real Estate Division’s December 2012 advisory opinion announcing that the HOA lien enjoyed true super-priority status. In addition, the purchaser noted that the Nevada Supreme Court was already presented with and rejected the non-retroactivity argument when it denied the petition for rehearing on the SFR decision.

On July 15, 2016, the Federal Housing Finance Agency filed an amicus brief in support of the lender. No oral argument has been set at this time. Needless to say, lenders rightly are monitoring this matter as the Nevada Supreme Court’s decision on the certified question has the potential to impact more than 5,000 cases currently pending before the lower courts throughout Nevada, as well as in other states with similar statutory schemes.