Arlington West, acting through a trustee – Alessi & Koenig, LLC – initiated foreclosure proceedings, recording a notice of delinquent assessment lien and a notice of default and election to sell.

After receiving the notice of default, Bank of America, N.A., as the assignee of a deed of trust securing a loan insured by the Federal Housing Administration (“FHA”), asked Arlington West to identify the superpriority portion of its lien so that it could pay that amount and thereby protect the bank's first deed of trust. Arlington West provided the bank with a ledger that showed the total amount due to the HOA but did not specify the superpriority amount.

Based on the ledger, Bank of America determined that the monthly HOA dues were $47 and calculated the superpriority amount as $423. The bank then tendered that amount to Arlington West.

Arlington West, however, rejected the payment as insufficient and held a foreclosure sale.

Thomas Jessup, LLC, bought the property and later assigned its interest to Thomas Jessup, LLC, Series IV.

Bank of America sued Arlington West, Alessi & Koenig, and the Jessup entities, asserting a quiet title claim.

The U.S. District Court for the District of Nevada granted summary judgment against Bank of America.

Bank of America appealed to the Ninth Circuit, arguing that the Nevada lien statute was preempted by the federal mortgage insurance program.

The Ninth Circuit's Decision

The Ninth Circuit affirmed.

In its decision, the circuit court ruled that the Nevada lien law was not preempted by federal law.

The Ninth Circuit explained that the FHA insurance program allows the U.S. Department of Housing and Urban Development (“HUD”) to insure home loans made by private lenders. The circuit court added that two of the program's goals are to help homeowners avoid foreclosure when possible and to protect the lender's (and thus HUD's) interest in the property in the event of a foreclosure.

In the circuit court's opinion, the Nevada statutory scheme did not conflict with these goals. Under Nevada law, the Ninth Circuit pointed out, a private lender could preserve its first deed of trust on a property and help homeowners explore alternatives to foreclosure by paying off the superpriority portion of the HOA's lien. In fact, it reasoned, HUD has recommended use of this course of action to satisfy both the federal mortgage insurance program and state HOA lien statutes. See HUD, Mortgagee Letter 13-18, Updated Clarification Regarding Title Approval at Conveyance (May 31, 2013); HUD, Mortgagee Letter 2002-19, Clarification Regarding Title Approval Issues, Property Condition at Conveyance, Administrative Offsets and a New Process for Lender Appeal of Conveyance Issues (Sept. 20, 2002).

Accordingly, the circuit court concluded that the Nevada lien law was not preempted.

The case is Bank of America, N.A. v. Arlington West Twilight Homeowners Ass'n, No. 17-15796 (9th Cir. April 3, 2019). Attorneys involved include: Ariel E. Stern (argued) and William S. Habdas, Akerman LLP, Las Vegas, Nevada, for Plaintiff-Appellant. John William Ebert (argued) and David A. Markman, Lipson Neilson Cole Seltzer & Garin P.C., Las Vegas, Nevada, for Defendant-Appellee Arlington West Twilight Homeowners Association. Karen L. Hanks (argued) and Richard L. Tobler, Las Vegas, Nevada, for Defendants-Appellees Thomas Jessup LLC and Thomas Jessup LLC, Series IV.