Ninth Circuit Finds Bank May Set Aside HOA Sale Conducted During Bankruptcy As Void

• Published date: 13 December 2021
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: Riker Danzig Scherer Hyland & Perretti
• Author: Mr Michael O'Donnell, Michael Crowley, Desiree McDonald and Kevin Hakansson

In a split decision, the United States Court of Appeals for the Ninth Circuit recently determined that the Bank of New York Mellon (the 'Bank'), as first deed of trust lienholder, could challenge a homeowner's association's ('HOA') sale of a property as a violation of an automatic bankruptcy stay, giving the Bank superior title. See Bank of New York Mellon as Tr. for Certificateholders of CWALT, Inc., Alternative Loan Tr. 2005-54CB, Mortg. Pass-Through Certificates Series 2005-54CB v. Enchantment at Sunset Bay Condo. Ass'n, 2 F.4th 1229 (9th Cir. 2021). In the case, Harold Hill ('Hill') purchased property at 732 Hardy Way, Mesquite, Nevada. The Bank was a first deed of trust lienholder. In January 2014, Hill fell behind in his HOA dues, and the HOA recorded a notice of delinquent assessment lien in February 2014. In April 2014, Hill filed for Chapter 13 bankruptcy, and an automatic stay went into effect. On July 15, 2014, while Hill's bankruptcy case was pending, the HOA recorded a notice of foreclosure sale, and sold the property to the 732 Hardy Way Trust (the 'Trust'). The Bank sued to quiet title and for declaratory relief on the basis that the foreclosure sale was void because it violated the bankruptcy stay, among other relief.

The Bank and the Trust each moved for summary judgment. The Trust argued it had superior title because the HOA foreclosure sale extinguished the Bank's deed of trust. The Bank argued that the HOA foreclosure sale did not extinguish its lien because the sale violated the automatic bankruptcy stay and thus was void under Nevada and Ninth Circuit precedent, or alternatively, Nevada's HOA foreclosure statute violated due process. The District Court granted summary judgment in favor of the Trust and dismissed the remaining claims against the HOA, holding that 'the foreclosure sale extinguished the [Bank's] deed of trust...