Bourne Valley Court Trust v. Wells Fargo Bank, NA, 2016 U.S. App. LEXIS 14857

Background

Wells Fargo held the first deed of trust on 410 Horse Pointe Ave; Parks Homeowners’ Association (HOA) foreclosed for unpaid HOA dues and sold the property to Bourne Valley after a trustee sale.
Nevada statute NRS 116.3116 (pre-amendment) gave an HOA a “super-priority” lien for up to nine months of unpaid assessments that could extinguish even a recorded first deed of trust.
The HOA’s notice scheme required lenders to request notice (an “opt‑in” scheme) before the HOA was obligated to mail notice of default or sale.
District court granted summary judgment to the purchaser (Bourne Valley) relying on the Nevada Supreme Court’s SFR Investments decision; Wells Fargo appealed raising a facial due process challenge.
The Ninth Circuit held the Statute facially unconstitutional because the opt‑in notice scheme shifted the burden to lenders and failed to provide notice reasonably calculated to apprise them before deprivation of property rights; the court vacated and remanded.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether NRS 116.3116’s opt‑in notice scheme violated procedural due process on its face	Wells Fargo: statute deprives lenders of property without notice reasonably calculated to apprise them because notice is provided only if lender requests it	Bourne Valley: statute should be read with NRS 107.090 (incorporated by NRS 116.31168) to require actual mailed notice to subordinate interest holders	Held unconstitutional on its face; opt‑in scheme impermissibly shifted burden to lenders and failed Mennonite standard
Whether the statute’s operation constitutes state action for Fourteenth Amendment purposes	Wells Fargo: enactment of Statute is state action because it directly altered property rights and allowed HOAs to extinguish lenders’ interests	Bourne Valley: foreclosure was a private sale and there was no overt official involvement, so no state action	Court: state action requirement satisfied — the statutory scheme, not the private sale, altered Wells Fargo’s property rights
Statutory interpretation: does NRS 116.31168(1)’s incorporation of NRS 107.090 require HOAs to send notice absent a request?	Wells Fargo/Bourne Valley: NRS 116.31168(1) brings 107.090’s mailed‑notice requirement into HOA foreclosures, curing any notice deficit	Opposing view (majority): reading 107.090 as supplanting Chapter 116’s opt‑in provisions renders Chapter 116 provisions superfluous and is not compelled	Court rejected the cure argument; declined to read 107.090 into Chapter 116 so as to displace the opt‑in scheme

Key Cases Cited

Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (U.S. 1983) (mail notice or other means reasonably certain to provide actual notice is minimum for proceedings that will adversely affect property interests)
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (U.S. 1950) (due process requires notice reasonably calculated to apprise interested parties)
SFR Investments Pool 1 v. U.S. Bank, 334 P.3d 408 (Nev. 2014) (Nevada court held HOA super‑priority lien foreclosure extinguished junior interests including first deeds of trust)
Small Engine Shop, Inc. v. Cascio, 878 F.2d 883 (5th Cir. 1989) (opt‑in notice provision in state statute failed due process)
Flagg Bros., Inc. v. Brooks, 436 U.S. 149 (U.S. 1978) (private nonjudicial sale under statutory authorization is not necessarily state action)
Apao v. Bank of New York, 324 F.3d 1091 (9th Cir. 2003) (nonjudicial foreclosure procedures lack overt official involvement and generally do not constitute state action)
Lugar v. Edmondson Oil Co., 457 U.S. 922 (U.S. 1982) (state action requires conduct fairly attributable to the state)
Fuentes v. Shevin, 407 U.S. 67 (U.S. 1972) (clerk‑issued writs and sheriff seizures can constitute state action triggering due process)
Sniadach v. Family Finance Corp., 395 U.S. 337 (U.S. 1969) (garnishment authorized by court clerk implicated due process)