By Kristin Schuler-Hintz, Esq.

McCarthy Holthus, LLP*

USFN Member (AR, AZ, CA, CO, ID, NM, NV, OR, TX, WA)

               Foreclosure delays due to legislative changes after the 2008-2009 foreclosure crisis led to HOAs in Nevada foreclosing on their liens for unpaid assessments, revealing a split in the interpretation of Nevada HOA foreclosure statutes. Ultimately, the Nevada Supreme Court ruled that HOAs held a true super-priority lien capable of wiping out a first deed of trust despite the relatively small purchase price at many of these sales. Following that decision, further litigation ensued seeking to find ways to temper the original decision, which wiped out thousands of deeds of trust.

Following the flood of quiet title issues, the Federal Housing Finance Agency (FHFA) intervened and asserted federal preemption challenging the HOAs’ ability to extinguish a first priority deed of trust owned by Fannie Mae or Freddie Mac. The Housing and Economic Recovery Act of 2008 (HERA), codified at 12 U.S.C. §§ 4511, et seq., established FHFA for the purpose of regulating the government-sponsored enterprises (GSEs), which were placed into conservatorship. See 12 U.S.C. § 4617(a)(2). The applicable provision of HERA, section 4617(j), provides in relevant part: “No property of the Agency [i.e., FHFA] shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency, nor shall any involuntary lien attach to property of the agency.” Id. at 4617(j). Based on this provision, the FHA and GSEs filed motions for summary judgment, which ended up before the Nevada Supreme Court asserting that section 4617(j) provides broad protection to the GSEs while under FHFA conservatorship, and that an HOA foreclosure could not extinguish the GSEs’ deeds of trust on the relevant property. Both the 9^th U.S. Circuit Court of Appeals and the Nevada Supreme Court ultimately agreed, holding that where the HOA foreclosed on property owned by Freddie/Fannie, the bar imposed by HERA was applicable and saved the deed of trust from extinguishment.

Failing to extinguish the deed of trust, the HOA purchasers sought out other grounds to retain the property free and clear. These “second gen” cases focus on obtaining injunctions (as most are filed on the eve of sale) to stop the sale of the property [KSJ1] and allege the deed of trust was wiped out by the ancient lien statutes rendering the deed of trust unenforceable, failure to provide statutory required information, or lack of possession of the original note. While the Nevada Supreme Court has issued a number of decisions on the ancient lien statute, preventing the issuance of an injunction has been more difficult.

Recently, however, at least one state court denied a request for injunction in a judicial foreclosure, holding that HERA, 12 U.S.C. § 4617(f)—bars the Court from staying execution of a judgment. 12 U.S.C. § 4617(f) provides that "no court may take any action to restrain or affect the exercise of powers or functions of [FHFA] as a conservator or receiver."  That statute "bars 'any' judicial interference with the 'exercise of powers or functions of [FHFA] as a conservator or a receiver."  Roberts v. Fed. Hous. Fin. Agency, 889 F.3d 397, 402 (7th Cir. 2018) (quoting 12 U.S.C. § 4617(f)) (emphasis in original).  "This shelter [from judicial interference] is sweeping [.]"  Id.  "The plain statutory text draws a sharp line in the sand against litigative interference—through judicial injunctions, declaratory judgments, or other equitable relief—with FHFA's statutorily permitted actions as conservator or receiver."  Perry Capital LLC v. Mnuchin, 864 F.3d 591, 606 (D.C. Cir. 2017).  Thus, "[a]t the same time [that] HERA broadly empowers [FHFA], it disempowers courts[.]" Roberts, 889 F.3d at 400.  A further request for stay on appeal followed in the Supreme Court and was denied.

While the Supreme Court did not provide the basis for denying the stay, the HERA provisions are another important tool to review and consider when formulating your litigation strategy.