Southern Highlands v. San Florentine

132 Nev., Advance Opinion 5
IN THE SUPREME COURT OF THE STATE OF NEVADA
SOUTHERN HIGHLANDS No. 66177
COMMUNITY ASSOCIATION,
Appellant,
vs. FILED
SAN FLORENTINE AVENUE TRUST;
JAN 1 4 2016
AND JPMORGAN MORTGAGE
ACQUISITION CORPORATION,
Respondents.
Appeal from a district court order granting a preliminary
injunction. Eighth Judicial District Court, Clark County; Adriana
Escobar, Judge.
Affirmed.
Alverson, Taylor, Mortensen & Sanders and Seetal N. Tejura, Las Vegas,
for Appellant.
Law Offices of Michael F. Bohn, Ltd., and Michael F. Bohn and Jeffrey
Arlitz, Las Vegas,
for Respondent San Florentine Avenue Trust.
Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP, and Jordan J. Butler,
Las Vegas,
for Respondent JPMorgan Mortgage Acquisition Corporation.
BEFORE THE COURT EN BANC.
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OPINION
By the Court, PARRAGUIRRE, CA.:
According to MRS 116.3116(4) (2013), "fulnless the declaration
otherwise provides, if two or more [homeowners] associations have liens
for assessments created at any time on the same property, those liens
have equal priority." Here we are asked to resolve how "equal priority"
liens interact during a foreclosure. Specifically, this court must determine
when multiple homeowners' association liens have equal priority, and
whether one equal priority lienholder's foreclosure (1) has no effect on
other equal priority liens, such that they survive the foreclosure sale and
continue encumbering the property; or (2) extinguishes the other equal
priority liens and entitles those lienholders to share in the sale proceeds.
We conclude NRS 116.3116(4) (2013) unambiguously explains when liens
have equal priority. We further conclude that when one equal priority
lienholder forecloses on its lien, any other equal priority liens: (1) are
extinguished, and (2) must be paid from the sale proceeds in full or on a
pro-rata basis if the sale proceeds are insufficient to fully pay all equal
priority liens. Accordingly, we affirm the district court's order granting a
preliminary injunction.
FACTS
The property at the center of this dispute is a part of two
homeowners' associations (HOAs): appellant Southern Highlands
Community Association (Southern Highlands) and nonparty The Foothills
at Southern Highlands Homeowners Association (Foothills). Foothills
'MRS 116.3116 was amended by the 2015 Legislature; former
subsection (4) was renumbered and, with identical language, is now NRS
116.3116(8). 2015 Nev. Stat., ch. 266, § 1, at 1335.
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foreclosed on the subject property after the former owner failed to pay
association dues, and respondent San Florentine Avenue Trust (San
Florentine) purchased it. San Florentine paid $45,100 for the property,
resulting in approximately $35,000 in excess proceeds over the amount of
Foothills' lien. Southern Highlands then recorded a lien against the
property for unpaid association dues pre-dating Foothills' sale. Southern
Highlands' lien was left unpaid, and eventually Southern Highlands set a
foreclosure sale date.
San Florentine sought to preliminarily enjoin Southern
Highlands' foreclosure sale. It argued NRS 116.3116(4) (2013) gives equal
priority to multiple HOA liens, and thus, Foothills' foreclosure sale
extinguished Southern Highlands' lien, while also entitling Southern
Highlands to satisfy its lien from the foreclosure sale proceeds. The
district court granted the preliminary injunction without addressing the
merits of San Florentine's argument. Southern Highlands now appeals.
DISCUSSION
Southern Highlands contends that the preliminary injunction
was improperly granted because, according to NRS Chapter 116, Southern
Highlands and Foothills had equal priority liens, and an equal priority
lien survives the foreclosure sale of a competing equal priority lien.
A district court's decision to grant a preliminary injunction
"will be reversed only where the district court abused its discretion or
based its decision on an erroneous legal standard." Boulder Oaks Cmty.
Ass'n v. B & J Andrews Enters., LLC, 125 Nev. 397, 403, 215 P.3d 27, 31
(2009) (quoting United States v. Nutri-cology, Inc., 982 F.2d 394, 397 (9th
Cir. 1992)). "[W]hen the underlying issues in the motion for preliminary
injunction 'involve[ ] questions of statutory construction, including the
meaning and scope of a statute, we review. . . those questions [of law] de
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novo." State, Dep't of Bus. & Indus., Fin. Insts. Div. v. Nevada Ass'n
Servs., Inc., 128 Nev., Adv. Op. 34, 294 P.3d 1223, 1226 (2012) (alterations
in original) (quoting Nevadans for the Prot. of Prop. Rights, Inc. v. Heller,
122 Nev. 894, 901, 141 P.3d 1235, 1240 (2006)).
"When a statute's language is clear and unambiguous, it must
be given its plain meaning. . . ." D.R. Horton, Inc. v. Eighth Judicial Dist,
Court, 123 Nev. 468, 476, 168 P.3d 731, 737 (2007). "A statute is
ambiguous if it is capable of being understood in two or more senses by
reasonably well-informed persons." Id. "When construing an ambiguous
statute, ttlhe meaning of the words used [in the statute] may be
determined by examining the context and the spirit of the law or the
causes which induced the legislature to enact it!" Id. at 476, 168 P.3d at
737-38 (alterations in original) (quoting McKay v. Bd. of Supervisors, 102
Nev. 644, 650-51, 730 P.2d 438, 443 (1986)).
The Foothills and Southern Highlands liens had equal priority
First, this court must determine the lien priority between the
Foothills and Southern Highlands liens. NRS 116.3116(4) (2013) governs
priority among competing HOA liens, stating: "[u]nless the declaration
otherwise provides, if two or more associations have liens for assessments
created at any time on the same property, those liens have equal priority."
According to NRS 116.3116(4) (2013)'s plain language, liens
will have "equal priority" if the lienholders are "associations" and the liens
secure "assessments" on the same property. An "association" is "the unit-
owners' association organized under [the statute setting forth the rules for
establishing an HOA]." NRS 116.011. Although "assessment" is not a
defined term, NRS Chapter 116 consistently uses the term to describe
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various fees and charges levied by HOAs. 2 See, e.g., NRS 116.3102; NRS
116.3115; NRS 116.3116. Although this court presently declines to
catalogue every charge that may or may not be an assessment, the
Legislature clearly envisioned "assessments" as including an HOA's
monthly dues. See NRS 116.3116(2) (2013) (giving HOAs a superpriority
as to "assessments for common expenses based on the periodic budget
adopted by the association"); 3 see also SFR Invs. Pool 1 v. U.S. Bank, 130
Nev., Adv. Op. 75, 334 P.3d 408, 410-11 (2014). Finally, NRS 116.3116(4)
(2013)'s plain language states that HOAs' assessment-based liens have
"equal priority" regardless of when the underlying assessments were
created. Thus, we conclude NRS 116.3116(4) (2013)'s plain language
unambiguously gives "equal priority" to two or more HOA liens on the
same property when those liens secure unpaid HOA fees or charges,
including unpaid HOA dues, regardless of when the underlying
assessment arose or became due. 4
Based on NRS 116.3116(4) (2013)'s plain language, the
Foothills and Southern Highlands liens will have "equal priority,"
2That usage is consistent with Black's definition: an assessment is
an "filmposition of something, such as a tax or fine, according to an
established rate; [or] the tax or fine so imposed." Assessment, Black's Law
Dictionary (10th ed. 2014).
The 2015 Legislature amended NRS 116.3116 such that the
3
material language from subsection (2) now appears at subsection (3)(b).
2015 Nev. Stat., ch. 266, § 1, at 1334.
4Although NRS 116.3116(4) (2013) allows an HOA's declaration to
alter this "equal priority" default rule, neither party here contends its
declaration establishes which lien has priority. See NRS 116.3116(4)
(2013) (stating that HOA liens have equal priority "fulnless the
declaration otherwise provides").
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regardless of when the underlying assessments were created, if
(1) Foothills and Southern Highlands are "associations," (2) with liens for
unpaid "assessments," (3) attached to the same property. Here, the
parties agree that Southern Highlands and Foothills are HOAs subject to
NRS Chapter 116; thus, the lienholders here are two "associations" for the
purposes of NRS 116.3116(4) (2013). Further, Foothills and Southern
Highlands both had liens for unpaid HOA dues, which are "assessments"
for the purposes of NRS 116.3116(4) (2013). Finally, both Southern
Highlands and Foothills had liens against the subject property.
Therefore, NRS 116.3116(4) (2013) unambiguously gives
Foothills' and Southern Highlands' liens "equal priority" regardless of
when the underlying assessments arose or became due. However, this
court must still determine what effect, if any, Foothills' foreclosure sale
had on Southern Highlands' equal priority lien.
Foothills' foreclosure sale extinguished Southern Highlands' lien, but
Southern Highlands is entitled to a share of the sale proceeds
Although NRS 116.3116(4) (2013) unambiguously identifies
when HOA liens have equal priority, the term "equal priority" is, itself,
ambiguous because NRS Chapter 116 never clarifies how equal priority
liens interact when one equal priority lienholder forecloses. One
commentator described the trouble with labeling liens as "equal priority,"
noting: "if two liens are equal in priority, the foreclosure of one lien cannot
eliminate the other, else the foreclosed lien would be superior. However,
neither can the non-foreclosed lien remain, else it would be superior." Guy
Lamoyne Black, Comment, Tax Titles in Utah: Caveats for Potential
Purchasers and Proposals for Change, 1991 BYE] L. Rev. 1573, 1605
(1991). Accordingly, the term "equal priority" in NRS 116.3116(4) (2013)
is ambiguous because reasonably well-informed people could differ on
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whether (1) an equal priority lien survives the foreclosure sale of another
equal priority lien, or (2) an equal priority lien is extinguished but entitles
the lienholder to sale proceeds when another equal priority lienholder
forecloses. See D.R. Horton, 123 Nev. at 476, 168 P.3d at 737. Having
concluded that the term "equal priority" is ambiguous, we must look
outside NRS 116.3116(4) (2013)'s text to determine the Legislature's
intended meaning. See id. at 476-77, 168 P.3d at 737-38.
Both parties erroneously contend that NRS 116.31164(3)
(2005)6 resolves the question of how equal priority liens interact during a
foreclosure. 6 NRS 116.31164(3) (2005) provides that
After the sale, the person conducting the sale
shall . . .
(c) [a]pply the proceeds of the sale for the
following purposes in the following order:
(1) The reasonable expenses of sale;
°The 2015 Legislature amended NRS 116.31164 such that the
material language from subsection (3) is now found in subsection (7). 2015
Nev. Stat., ch. 266, § 5, at 1341-42.
6 San Florentine focuses on a portion of MRS 116.31164(3)(c)(4)
(2005) that requires "Is] atisfaction in the order of priority" after a
foreclosure sale. According to San Florentine, this shows that Southern
Highlands' lien was extinguished by the sale but that Southern Highlands
is also entitled to proceeds from that sale in an equal priority position.
Conversely, Southern Highlands contends that NRS 116.31164(3)(c)(4)
(2005) expressly requires payment for "the association's lien," then
"Is] atisfaction in the order of priority of any subordinate claim of record."
(Emphasis added.) Thus, Southern Highlands argues, MRS 116.31164(3)
shows equal priority lienholders are never entitled to proceeds, so such
lien claims must survive a foreclosure sale. These arguments lack merit
because, as discussed below, NRS 116.31164(3) (2005) was never intended
to resolve equal priority lien claims.
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(2) The reasonable expenses of securing
possession before sale.
(3) Satisfaction of the association's lien;
(4) Satisfaction in the order of priority of any
subordinate claim of record. . . .
(Emphasis added.) NRS 116.31164(3) (2005)'s plain language and
legislative history do not discuss or contemplate equal priority liens. The
statute was modeled after § 3-510 of the Uniform Land Transactions Act
(ULTA). See 1982 UCIOA § 3-116, comment 4 (the language codified at
NRS 116.31164(3) (2005) was modeled after 1975 ULTA § 3-510); 1975
ULTA § 3-510. However, ULTA never discusses or clarifies how to resolve
disputes between equal priority lienholders. See 1975 ULTA § 3-301; see
also 1978 ULTA § 3-301, cmts. 1-6. NRS 116.31164(3) (2005) does not
textually explain how equal priority liens interact during a foreclosure
sale, and the Legislature never intended for NRS 116.31164(3) (2005) to
provide such guidance.
Furthermore, no provision of NRS Chapter 116 explains what
happens to equal priority liens during a foreclosure, and thus, no plain
meaning analysis is possible. The legislative history for NRS Chapter 116
never discusses what equal priority liens are or how they interact with
each other. Nor does the UCIOA or its comments explain how equal
priority liens interact with one another. See SFR Invs., 130 Nev., Adv. Op.
75, 334 P.3d at 410, 413 (noting that NRS Chapter 116 is derived from the
1982 UCIOA, and thus, UCIOA's comments should be given considerable
interpretive weight).
However, more generally, NRS 116.1108 provides that "[t]he
principles of law and equity. . . supplement the provisions of this chapter,
except to the extent inconsistent with this chapter." Although we have
found no settled "principles of law" clarifying how equal priority liens
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interact during a foreclosure, we find California's approach for equal
priority mechanics' liens persuasive. There, when one equal priority
mechanic's lienholder forecloses, the other equal priority mechanic's
lienholders are entitled to proceeds in the same priority position as the
foreclosing lienholder, and their liens are extinguished. 5 Miller & Starr,
Cal. Real Estate § 11:130 (3d ed. 2009); see Santa Clara Land Title Co. v.
Notvack & Assocs., Inc., 277 Cal. Rptr. 497, 500-01 (Ct. App. 1991). If the
sale proceeds are insufficient to pay all equal priority mechanic's
lienholders, the funds are distributed among all equal priority lienholders
on a pro-rata basis. Miller & Starr, supra, § 11:130; see Idaco Lumber Co.
v. Nw. Say. & Loan Ass'n, 71 Cal. Rptr. 422, 424-29 (Ct. App. 1968).
Although we have never so held, Nevada's mechanic's lien statutes appear
to follow the same approach. See NRS 108.236; NRS 108.239(11).
We find this approach persuasive for three reasons. First,
even if NRS Chapter 116 does not compel this approach, it is not
inconsistent with the chapter. See NRS 116.1108. Second, we conclude
this approach better fits the term "equal priority" because (1) it allows all
equal priority lienholders to be paid at the same time; and (2) if the sale
proceeds are insufficient to satisfy all equal priority liens, all equal
priority lienholders, including the foreclosing lienholder, share that loss
pro-rata. Finally, this approach avoids scenarios where multiple equal
priority lienholders attempt to foreclose on the same property at different
times even though the initial foreclosure sale produced sufficient sale
proceeds to pay off all equal priority liens. Therefore, we choose to adopt
this approach and find its reasoning sound.
Accordingly, Southern Highlands cannot hold a foreclosure
sale on the property because Foothills' foreclosure sale extinguished
Southern Highlands' lien. Nevertheless, Southern Highlands is entitled to
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proceeds from that sale in the amount of its lien on the date of the
foreclosure sale. If the sale proceeds are insufficient to satisfy Southern
Highlands' lien, Foothills and Southern Highlands must share that loss
pro-rata.
CONCLUSION
NRS 116.3116(4) (2013) unambiguously gives "equal priority"
to two or more HOA liens on the same property when those liens secure
unpaid HOA fees or charges, including unpaid HOA dues, regardless of
when the underlying assessment arose or became due. Thus, NRS
116.3116(4) (2013) gave the Foothills and Southern Highlands liens equal
priority. When one equal priority lienholder forecloses, all other equal
priority liens are extinguished. However, all equal priority lienholders
share in the foreclosure sale proceeds in one of two ways: (1) all equal
priority liens are paid in full whenever the proceeds are sufficient to do so;
or (2) when the sale proceeds are inadequate to fully satisfy all the equal
priority liens, all equal priority lienholders receive a pro-rata share of the
proceeds. Under this methodology, Foothills' foreclosure sale extinguished
Southern Highlands' lien, but Southern Highlands remains entitled to its
proper share of the sale proceeds. 7
7 Southern Highlands' briefing raised additional and colorable
arguments challenging the district court's preliminary injunction order;
however, we decline to address them. Our holding is that Foothills'
foreclosure sale extinguished Southern Highlands' lien; therefore,
Southern Highlands simply has no legal right to foreclose on the property.
Regardless of any error the district court may have committed, the
preliminary injunction was a proper method for preventing Southern
Highlands from foreclosing on a lien that no longer existed, and we need
not agree with the district court's rationale to affirm its ultimate
disposition. Saavedra-Sandoval v. Wal-Mart Stores, Inc., 126 Nev. 592,
598-99, 245 P.3d 1198, 1202 (2010).
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Accordingly, we affirm the district court's preliminary
injunction order.
TQAA
Parraguirre
We concur:
/ verLA J.
Hardesty
—,,
Douglas
Gibbons
Adam. J.
Pickering
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