By Lisa M. Goolik, J.D.
The “commercial reasonableness” standard of Uniform Commercial Code Article 9 does not apply to the foreclosure of a homeowners’ association lien involving the sale of real property, the Supreme Court of Nevada has concluded. The “elaborate” requirements that an HOA must follow in order to foreclose on the real property securing a lien under Nevada’s Uniform Common Interest Ownership Act (UCIOA) override Article 9's “deliberately flexible” requirements regarding the method, manner, time, place, and terms of a sale of personal property collateral. As a result, the court’s standard for reviewing the foreclosure sale was limited to whether the sale was affected by some element of fraud, unfairness, or oppression.
Low sales price. The purchaser of the property at the HOA’s foreclosure auction had filed an action to quiet title against a lender, Nationstar Mortgage, LLC, that held a deed of trust in the property. Nationstar challenged the action, arguing the sales price of the property—$35,000—was commercially unreasonable as a matter of law.” In support, Nationstar provided an appraisal valuing the property at $335,000 as of the date of the HOA's foreclosure sale. Nationstar contended that the HOA foreclosure sale should be set aside as commercially unreasonable, as demonstrated by the low sales price.
The court agreed that, in the context of Article 9 sales, the secured creditor has an affirmative obligation to obtain the highest sales price possible, and if the sale is challenged, the secured creditor has the burden of establishing commercial reasonableness. However, after examining the statutory requirements of the UCIOA and Article 9, the court concluded that the “commercial reasonableness” standard does not apply to a foreclosure of an HOA lien involving the sale of real property. Accordingly, “inadequacy of price” was not a sufficient ground for setting aside the HOA’s foreclosure sale “absent additional proof of some element of fraud, unfairness, or oppression as accounts for and brings about the inadequacy of price.”
For more information about Nationstar Mortgage, LLC v. Saticoy Bay LLC Series 2227 (Nev. Sup. Ct.), subscribe to the Banking and Finance Law Daily.
