Lien Back: Why Homeowner Association Super-Priority Lien Statutes Should Be Repealed

Abstract

Who should have priority to foreclose on a home? Naturally, one might say that the bank or mortgage company that provided the loan to build or purchase a home should have priority. Most states follow this common-sense approach to property ownership and foreclosure. Twenty-two states, however, have granted Homeowner Associations (“HOAs”) “super-priority” status in foreclosure proceedings. This means that debt owed to HOAs has priority over any debt owed to the mortgage provider. Some state statutes even grant HOAs the power to foreclose on a home, sell it at auction, and wipe out the mortgage providers secured interest entirely. Recently, the Ninth Circuit in Bourne Valley Court Trust v. Wells Fargo found that Nevada’s version of the HOA super-priority statute was “facially unconstitutional.” Many states, including Nevada, adopted these statutes using the same language and recommendations from the Uniform Law Commission, leaving other states respective statutes subject to future constitutionality attacks. Additionally, these statutes have led to severe economic consequences in both the mortgage and housing industries and are generally bad public policy.This Article is the first to examine the Bourne Valley decision declaring Nevada’s statute “facially unconstitutional.” Additionally, this Article is the first to propose repealing HOA super-priority statutes and replacing the statutes with legislation that attaches the HOA debt to the person, and not the property. Alternatively, this Article provides solutions to both substantively and procedurally enhance current HOA super-priority statutes to ensure that the mortgage provider’s interest is adequately protected.