U.S. Appellate Court Says Federal Bar on Nonconsensual HOA Foreclosures Preempts State Law

PUBLISHED United States Court of Appeals for the Ninth Circuit decision (August 25, 2017).

This case involved a dispute between the purchaser of a property at a foreclosure sale and the Federal Home Loan Mortgage Corporation (“FreddieMac”) over the validity of FreddieMac’s lien on the property that was purchased by the plaintiff in the action. The purchaser contended that the “superpriority lien” provisions contained in Nevada statutes empowered the foreclosing homeowners association to sell the property free and clear of all other liens or interests, including the interest held by FreddieMac.  FreddieMac contended that the purchaser purchased the property subject to its interest in the property because a Federal Foreclosure Bar preempts Nevada’s state law that purports to extinguish other interests such as the interest held by FreddieMac. Because FreddieMac had not consented to the association’s foreclosure of its lien, the district court concluded that the Federal Foreclosure Bar prevented the extinguishment of FreddieMac’s interest in the property upon foreclosure.

The purchaser contended that the Federal Foreclosure Bar does not apply to private foreclosure sales, but the appellate court did not agree in holding that, “the Federal Foreclosure Bar applies to any property for which the Agency serves as conservator and immunizes such property from any foreclosure without Agency consent. The court further held that the requisite consent an affirmative act and consent could not be implied from a lack of action to prevent the foreclosure sale.

The appellate court ruled that the Federal Foreclosure Bar implicitly demonstrates a clear intent to preempt Nevada’s superpriority lien law and because the foreclosure sale in question was conducted without FreddieMac’s consent to the relinquishment of its interest in the property, the interest was not extinguished by the sale because the Federal Foreclosure Bar supersedes the Nevada state statutes that provide homeowners associations with superpriority lien status.

See case decision: Berezovsky_v._Moniz_(9th_Cir._2017)1