979 F.3d 1209
9th Cir.2020Background
- Nevada law (Nev. Rev. Stat. §116.3116) grants HOAs a superpriority lien for the last nine months of unpaid assessments; foreclosure on that lien can extinguish prior deeds of trust.
- In 2008 Wells Fargo recorded a deed of trust on a Las Vegas home; the homeowners later defaulted on HOA dues to Copper Creek HOA.
- The HOA foreclosed nonjudicially; Mahogany Meadows Avenue Trust bought the property at auction in 2013 and Wells Fargo’s deed of trust was extinguished.
- Wells Fargo sued to quiet title, alleging the statute’s operation effected an uncompensated taking and violated due process; the district court dismissed the complaint.
- The Ninth Circuit considered whether (1) application of the preexisting statute to Wells Fargo’s later-acquired lien was a Fifth Amendment taking, and (2) whether notice of foreclosure satisfied due process.
- The court also reviewed denial of Wells Fargo’s Rule 59(e) motion (which raised the Servicemembers Civil Relief Act) and affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Takings Clause: Did application of Nev. Rev. Stat. §116.3116 to extinguish Wells Fargo’s deed of trust constitute an uncompensated taking? | Wells Fargo: The HOA foreclosure completely ousted its property interest (deed of trust); this is a per se taking without compensation. | Defendants: The statute and HOA covenant predated Wells Fargo’s lien; background state law limited Wells Fargo’s property interest, so no taking occurred. | Held: No taking. The statute predated Wells Fargo’s lien, so the lender never had an unimpaired property right; prospectively applied background-law principles defeat the claim. |
| Due Process: Was notice of the HOA foreclosure constitutionally inadequate? | Wells Fargo: Notices did not state the superpriority nature, the amount of the superpriority portion, nor explicitly warn that the mortgage was at risk. | Defendants: Notices complied with the statutory scheme and Wells Fargo received actual notice; the statute (as interpreted by Nevada courts) requires notice to subordinate interest holders. | Held: No due process violation. Wells Fargo received actual, constitutionally adequate notice; Arlington West controlling. |
| Rule 59(e) / SCRA issue: Did the district court abuse discretion by denying reconsideration based on Servicemembers Civil Relief Act grounds? | Wells Fargo: Raised SCRA defense after dismissal, asserting homeowner’s active-duty status invalidated the sale. | Defendants: Evidence was available earlier; Rule 59(e) cannot be used to raise new arguments that could have been presented previously. | Held: No abuse of discretion. Reconsideration denied because Wells Fargo could have raised the SCRA issue earlier. |
Key Cases Cited
- Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage, 388 P.3d 970 (Nev. 2017) (Nevada Supreme Court held HOA nonjudicial foreclosure does not violate Takings Clause)
- SFR Invs. Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408 (Nev. 2014) (Nevada Supreme Court interpreting HOA lien-superpriority to cut off other liens upon foreclosure)
- Arlington W. Twilight Homeowners Ass’n v. Bank of Am., 920 F.3d 620 (9th Cir. 2019) (per curiam) (statutory notice, as interpreted by Nevada Supreme Court, satisfied due process where lender received actual notice)
- Bourne Valley Court Tr. v. Wells Fargo Bank, 832 F.3d 1154 (9th Cir. 2016) (construed Nevada statute as an opt-in notice scheme and held facial due process problems)
- United States v. Security Indus. Bank, 459 U.S. 70 (1982) (statutory retroactivity and takings concerns; prospective application avoids Takings Clause issue)
- Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992) (background state-law principles can negate claimed property interests for takings analysis)
- Jones v. Flowers, 547 U.S. 220 (2006) (due process requires notice reasonably calculated to apprise interested parties)
- Vardanega v. IRS, 170 F.3d 1184 (9th Cir. 1999) (buyer purchased property subject to preexisting statutory right of redemption; IRS’s exercise did not violate Takings Clause)
- Bair v. United States, 515 F.3d 1323 (Fed. Cir. 2008) (statutory superpriority deemed a background principle that inheres in title created after enactment)
- Armstrong v. United States, 364 U.S. 40 (1960) (government exercise of paramount lien could destroy suppliers’ effective interest; not inconsistent with background-principle rule)