For the past several years, Nevada courts have been flooded with quiet title actions between mortgage lenders and buyers who acquired residential properties at homeowners association (HOA) super-lien foreclosures. Recently, in Horizons at Seven Hills Homeowners Ass'n v. Ikon Holdings, LLC, the Nevada Supreme Court held that the super-lien does not include enforcement and foreclosure costs incurred by the HOA. Instead, it only includes an amount equal to nine months of HOA assessments, plus any charges the HOA has incurred to maintain the property or abate a nuisance at the property. The court's decision will potentially impact cases where a Nevada HOA foreclosed before October 1, 2015 and a mortgage lender paid off (or attempted to pay off) the super-lien to protect its security interest.

Nevada law provides a statutory lien for unpaid assessments to HOAs. If a homeowner fails to keep the assessments current, the HOA may record a lien against the property. A portion of the HOA’s lien enjoys a "super-priority" over a first security interest recorded prior to the HOA lien.  In 2014, the Nevada Supreme Court held in SFR Investments Pool 1, LLC v. U.S. Bank, N.A. that a properly conducted super-lien foreclosure can extinguish a previously recorded first mortgage or deed of trust. However, the court did not clearly explain what particular charges are included in the super-priority lien (and therefore, what charges a lender must pay off to avert any threat to its security interest).

In Horizons, a homeowner financed a residential property with a mortgage loan secured by a deed of trust. The homeowner later became delinquent both on payments under the mortgage loan and assessments owed to the HOA. The HOA responded by recording a lien against the property and commenced foreclosure proceedings. Before the HOA could foreclose, the lender held a trustee’s sale pursuant to its deed of trust. The property was sold to a third-party bidder, which eventually transferred the property to plaintiff Ikon Holdings.

The HOA claimed that Ikon Holdings acquired the property subject to the super-priority portion of the HOA's lien. Ikon Holdings did not dispute that the super-lien was senior to the lender's deed of trust, and therefore, that the super-lien survived the trustee’s sale. However, the HOA and Ikon Holdings disputed the composition and amount of the super-lien. The HOA claimed it included the enforcement and foreclosure costs incurred in earlier foreclosure proceedings. Ikon Holdings countered that Nevada law specifically limited super-liens to nine months of assessments, and charges for maintenance and abatement. 

The Nevada Supreme Court held the super-lien did not include foreclosure and enforcement costs. It rejected a 1992 case which held that under Connecticut's HOA statutes—which are largely identical to Nevada's—such costs are included in the super-lien. The court noted the Connecticut opinion did not conduct any statutory analysis of the relevant super-lien language, and that it involved a judicial foreclosure, unlike Horizons. The court also rejected the HOA's argument that excluding foreclosure and collection costs from the super-lien would be inconsistent with a Nevada regulation governing the amount of such costs that an HOA can charge to a homeowner. The court also noted that the Nevada Legislature had considered several bills prior to 2015 that would have included collection costs in the super-priority lien, but none of the bills passed. The court also cited a 2012 advisory opinion from the Nevada Real Estate Division, the agency responsible for administering Nevada’s HOA statutes. That opinion found that the super-priority lien should not include costs of collecting. Finally, the court held that Nevada's HOA statutes preempted a provision of the HOA's declaration which purported to include enforcement costs in the super-priority lien. The court held that Nevada law likewise preempted a section of the declaration that purportedly limited the super-priority lien to six months of assessments, rather than nine months of assessments.

Although Horizons involved a lender's foreclosure under its deed of trust, it is relevant in cases where an HOA foreclosed under its super-lien. Where the HOA foreclosed prior to October 2015, and where the lender paid off (or tried to pay off) the portion of the lien that enjoys a super-priority under Horizons, the lender arguably satisfied the only portion of the lien that could extinguish its first security interest. Importantly, the Horizons case only applies to HOA foreclosure sales held prior to October 1, 2015. Effective that date, the Nevada Legislature amended N.R.S. Chapter 116 to provide that certain types of collection and foreclosure costs are part of the super-priority lien. However, the vast majority of pending lawsuits involve HOA foreclosures that were conducted under the pre-amendment version of the statute.