The U.S. Court of Appeals for the Ninth Circuit recently held that a conditional offer from a lender was not a valid tender to satisfy the superpriority portion of an HOA lien.
A copy of the opinion in Citimortgage, Inc. v. Corte Madera Homeowners Ass’n is available at: Link to Opinion.
A condominium owner fell behind on the assessments she owed her homeowners association (“HOA”) and filed a Chapter 7 bankruptcy on Feb. 29, 2012. On July 2, 2013, the HOA’s collection agency recorded a notice of delinquent assessment lien on behalf of the HOA.
The lender responded to the notice of default by sending a letter to the HOA requesting that the HOA identify the superpriority amount of its HOA lien, with a breakdown of nine months’ assessments so the lender could calculate and tender that portion of the lien. The HOA acknowledged receipt of the lender’s letter but responded by demanding that all payoff requests are to be submitted through its online request form. The lender did not comply with the HOA’s demand.
As you may recall, Nev. Rev. Stat. § 116.3116(1) allows HOAs to pursue liens on members’ homes for unpaid assessments and charges. HOA liens are split into superpriority and subpriority components. The superpriority component is prior to all other liens, including first deeds of trust; and it comprises nine months’ worth of common assessments and any nuisance-abatement or maintenance charges.
An HOA may foreclose on its superpriority lien through a non-judicial foreclosure sale. Additionally, to initiate a non-judicial foreclosure proceeding, an HOA must give notice of delinquency and wait 90 days to allow the homeowner to pay off the lien. See Nev. Rev. Stat. § 116.31162. Notice of default and notice of sale must be provided to the homeowner and to any holders of security interests in the property. Id. The holder of the first deed of trust may protect its collateral by tendering the amount of the superpriority portion of the lien to the HOA. Before 2015, these notices were not required to state the amount of the superpriority portion.
The HOA recorded a notice of trustee sale in April 2014, and an individual buyer purchased the property for $11,100 at the non-judicial foreclosure sale and later executed a quitclaim of her interest to a separate company (the “LLC”).
In February 2016, the new holder of the deed of trust (“mortgagee”) filed a complaint against the HOA, collection agency, buyer and LLC for quiet title.
The mortgagee argued the lender’s offer to pay the superpriority portion of the lien, conditioned on receipt of “adequate proof” of the amount of the lien, was a valid tender. The trial court disagreed, and this appeal followed.
The Ninth Circuit considered two issues on appeal: (1) whether there was a valid tender which would defeat the superpriority lien; and (2) whether the property was property of the debtor or of the bankruptcy estate, to determine whether the notices violated the bankruptcy stay.
The Ninth Circuit noted that the Nevada Supreme Court has cited with approval the commonly recognized definition of tender as “an offer to perform a condition or obligation, coupled with the present ability of immediate performance.” 7510 Perla Del Mar Ave Tr. v. Bank of Am., N.A., 458 P.3d 348, 350 (Nev. 2020), thus endorsing “the generally accepted rule that a promise to make a payment at a later date or once a certain condition has been satisfied cannot constitute a valid tender.” Id.
The mortgagee argued that the lender’s letter to the HOA constituted a valid tender because the letter insisted on a permissible condition: that the HOA present “adequate proof” of the amount due for nine months’ assessments. The lender’s letter recounted the relevant provisions of section 116.3116 and requested a copy of the “HOA payoff ledger detailing the super-priority amount by providing a breakdown of nine (9) months of common HOA assessments in order for us to calculate the super priority [sic] amount.”
The Appellate Court agreed that valid tender of the superpriority portion would discharge an HOA lien, but held that the tender either must be unconditional or include only those “conditions on which the tendering party has a right to insist,” such as a request for satisfaction of judgment or a statement that the acceptance of tender satisfies the superpriority portion of the lien. Bank of Am., N.A. v. SFR Invs. Pool 1, LLC, 427 P.3d 113, 117–18 (Nev. 2018).
The Ninth Circuit relied on the recent Nevada Supreme Court ruling in Perla Del Mar, which held that a mere offer to pay at a later time, after the superpriority amount is determined, does not constitute a valid tender. Id. at 350–51. It also held that formal tender is excused when it is known that the party entitled to payment will reject it. Id. at 351.
Here, the lender’s letter to the HOA and the mortgagee’s summary judgment briefing, asserted that the superpriority portion was limited to nine months’ worth of common assessments. However, the Court noted the superpriority portion includes nine months’ worth of assessments and any unpaid maintenance and nuisance-abatement charges. Although the mortgagee argued that no nuisance-abatement or maintenance charges were owed in this case, the Appellate Court held that the mortgagee failed to offer any persuasive response to the trial court’s ruling that the lender’s tender was impermissibly conditional.
The Ninth Circuit rejected the mortgagee’s additional argument that it had no way to calculate the superpriority amount of the HOA’s lien because that overlooks the Nevada Supreme Court’s ruling that the operative version of section 116.3116 allowed lenders to satisfy the superpriority portion of an HOA lien by paying the entire amount in the notice of default and seeking reimbursement.
Finally, the bank alternatively argued that its obligation to tender should be excused because the collection agency had a known policy of rejecting any payment for less than the full lien amount. The Appellate Court rejected this argument as it was not preserved for appeal.
Accordingly, the Appellate Court held that the trial court did not err when it ruled that the lender’s inquiry letter was impermissibly conditional, and the mortgagee did not preserve its argument that its tender was excused.
The Ninth Circuit then examined the mortgagee’s argument that the notices themselves violated the automatic stay, that the notices must be deemed void as a result, and that the subsequent foreclosure sale must be set aside for lack of adequate notice.
The Appellate Court acknowledged that “[g]enerally, the filing of bankruptcy will stay all proceedings relating to a foreclosure sale.” Mann v. Alexander Dawson, Inc. (In re Mann), 907 F.2d 923, 926–27 (9th Cir. 1990) and the trial court misperceived the contention in the mortgagee’s complaint and mistakenly focused on the foreclosure sale rather than on the notices of delinquent assessment and default.
Accordingly, the Ninth Circuit remanded the matter to consider whether the property was property of the debtor or of the estate, to determine whether the notices violated the bankruptcy stay, and to address whether the mortgagee has standing to challenge the alleged violation.