Tuesday, February 8, 2022

FYI: Nevada Sup Ct Holds Challenges to HOA Liens Subject to 4-Year SOL, Which May Not Be Triggered by HOA Sale

In response to certified questions from the U.S. Court of Appeals for the Ninth Circuit, the Nevada Supreme Court recently held that:


(1) an action seeking to determine the validity of a homeowners association lien under NRS 40.010 is subject to NRS 11.220's four year statute of limitations; and


(2) the four year statute of limitations does not begin to run until the titleholder "affirmatively repudiates" the lien; and


(3) a homeowners association's foreclosure sale, standing alone, does not trigger the applicable four-year statute of limitations.


A copy of the opinion is available at:  Link to Opinion


The appellant ("Bank") is the holder of a first priority deed of trust recorded against real property located in Nevada (the "Lien").  Non-party borrower ("Borrower") allegedly fell behind on his home owner's association's ("HOA") assessments resulting in the HOA foreclosing on the property at issue in 2011 (the "HOA Foreclosure Sale").  The property was subsequently transferred to the respondent titleholder ("Titleholder").


In 2016, and five years after the HOA Foreclosure Sale occurred, the Bank sued the Titleholder seeking a declaration to quiet title pursuant to state and federal declaratory judgments acts, as well as Nevada's quiet title statute.  The Titleholder argued that the statute of limitations on the Bank's declaratory relief claim began running on the date of the HOA Foreclosure Sale occurred, meaning the Bank's claim for declaratory relief should be dismissed as being time barred. 


The federal trial court agreed and dismissed the Bank's claim.  The Bank appealed, and the Ninth Circuit certified the following questions of law to the Nevada Supreme Court:


(1) When a lienholder whose lien arises from a mortgage for the purchase of a property brings a claim seeking a declaratory judgment that the lien was not extinguished by a subsequent foreclosure sale of the property, is that claim exempt from statute of limitations under City of Fernley v. Nevada Department of Taxation, 366 P.3d 699 (Nev. 2016) ("City of Fernley")?

(2) If the claim described in (1) is subject to a statute of limitations:

        (a) Which limitations period applies?

        (b) What causes the limitations period to begin to run?


Concerning the first certified question, the Nevada Supreme Court held that City of Fernley does not "necessarily allow declaratory relief in an action that is otherwise time-barred, because framing an action as seeking declaratory relief does not provide a categorical exception to the statute of limitations." 


As you may recall, City of Fernley held that an action for declaratory or injunctive relief seeking to prevent a future constitutional violation is not subject to a statute of limitations that began to run when the first constitutional violation occurred. The Court in City of Fernley did not hold that declaratory relief "is categorically exempt from statutes of limitation."


Here, the Nevada Supreme Court clarified that "a claim for declaratory relief cannot be used to circumvent the statute of limitations absent an alleged ongoing violation of a party's constitutional rights."  In fact, the Court found that City of Fernley does not apply to prospective statutory claims as the Bank contended.


Thus, the Nevada Supreme Court concluded that requesting "declaratory relief does not exempt a time-barred claim from the statute of limitations where there is not an ongoing violation of a party's constitutional rights."   


Next, the Court examined what statute of limitations applied to the Bank's declaratory relief claim. Specifically, the Nevada Supreme Court examined the nature of the Bank's claim, and found that although the Bank framed its claim as declaratory relief, the substantive relief actually sought was a "declaration to quiet title resolving the status of the Bank's interest in the Property." 


The Nevada Supreme Court proceeded to examine what statute of limitations applies to a quiet title claim under Nevada state law concluding that "no statute of limitations specifically addresses a quiet title action involving a nonpossessory lien."  As a result, the Court held NRS 11.220's four year "catch-all" statute of limitations applies to quiet title claims, such as the Bank's claim here. 


Lastly, the Court considered the Ninth Circuit's question as to when the statute of limitations began running on the Bank's declaratory relief claim.  In response, the Nevada Supreme Court held the applicable limitations period does not begin run "until the lienholder receives notice of some affirmative action by the titleholder to repudiate the lien or that is otherwise inconsistent with the lien's continued existence." 


Importantly, the Nevada Supreme Court explained that an HOA foreclosure sale, standing alone, is insufficient to trigger the four-year statute of limitations as a "foreclosure sale does not necessarily extinguish the [Bank's] lien."  Thus, to trigger the statute of limitations, "something more [than a HOA foreclosure sale] is required."  However, the Court declined to elaborate on what qualifies as "something more" in the context of triggering the applicable statute of limitations. 


Accordingly, and in response to the Ninth Circuit's certified questions, the Nevada Supreme Court held: (1) the City of Fernley does not establish that declaratory judgment actions are categorially exempt from statutes of limitations; (2) a claim seeking to quiet title by declaring the validity of a lien is subject to a four-year statute of limitations; and (3) because an HOA foreclosure sale may or may not extinguish a lien, an HOA foreclosure sale does not, without more, trigger the applicable statute of limitations period.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: rwutscher@MauriceWutscher.com


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