Ninth Circuit Upholds Preemption Of Nevada Super-Priority Statute

In what should end a long-simmering legal brushfire, the Ninth Circuit held that the Federal Housing Finance Agency’s (“FHFA”) so-called “Federal Foreclosure Bar” preempts Nevada’s homeowners’ association lien super-priority statute, thereby protecting Fannie/Freddie mortgage liens from being extinguished through foreclosure of later-recorded homeowners association liens. Berezovsky v. Moniz, et al., 869 F.3d 923 (9th Cir. 2017).

Berezovsky purchased a home at a homeowners association foreclosure sale. He filed suit in state court asserting that the Nevada super-priority statute allowed the homeowners association to sell the home free and clear of other liens, irrespective of priority. Freddie Mac intervened, removed the case to federal court, and, joined by the FHFA, moved for summary judgment, arguing that the Federal Foreclosure Bar in the Housing and Economic Recovery Act of 2008 (“HERA”), 12 U.S.C. §§ 4511, 4617(J)(3), preempts Nevada’s superpriority statute. The United States District Court for the District of Nevada granted summary judgment, holding that pursuant to this statutory conservatorship provision, FHFA-owned first priority liens were protected from non-consensual foreclosure.

On appeal, in a question of first impression, the Ninth Circuit found that the FHFA conservatorship lien protection powers applied to private foreclosures generally, distinguishing the Fifth Circuit’s decision in F.D.I.C. v. McFarland, 243 F.3d 876 (5th Cir. 2001), which held that a similar statute protecting Federal Deposit Insurance Corporation receiverships was limited to tax sales. The court also rejected arguments that Freddie Mac implicitly consented to the foreclosure sale by taking no action to stop it, and that Freddie Mac had no property interest to protect because it “split” the ownership of the promissory note (held in its name) and beneficial interest under the deed of trust (held in the name of Mortgage Electronic Registration Systems, Inc. (“MERS”), and then the servicer).

This decision should unequivocally protect Fannie/Freddie first mortgages from any further claims based on Nevada’s superpriority statute.

For more information regarding homeowners association super-priority statutes, please contact Michael J. Steiner at mjs@severson.com or 415-677-5611.