Court Opinion

ID: 4692580
Source: CourtListenerOpinion
Date Created: 2021-06-03 17:00:53.667393+00
Date Added: 2024-06-11T08:05:17.051524
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

U.S. BANK, N.A., Trustee for the          No. 19-15918
Holders of the J.P. Morgan
Mortgage Trust 2007-S3,                     D.C. No.
                Plaintiff-Counter-    2:15-cv-01484-KJD-
            Defendant-Appellant,             GWF

                v.
                                          ORDER
SOUTHERN HIGHLANDS                      CERTIFYING
COMMUNITY ASSOCIATION,                 QUESTION TO
          Defendant-Appellee,          THE NEVADA
                                      SUPREME COURT
SFR INVESTMENTS POOL 1, LLC,
  Defendant-Counter-Claimant-
      Cross-Claimant-Appellee,

                v.

NATIONSTAR MORTGAGE LLC;
BANK OF AMERICA, NA,
                 Cross-Claim-
        Defendants-Appellants.

                     Filed June 3, 2021
2    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

 Before: Eugene E. Siler,* Sandra S. Ikuta, and Jacqueline
              H. Nguyen, Circuit Judges.

                                 Order

                            SUMMARY**

                    Nevada Foreclosure Law

    The panel certified to the Nevada Supreme Court the
following question:

         Whether, under Nevada law, an HOA’s
         misrepresentation that its superpriority lien
         would not extinguish a first deed of trust,
         made both in the mortgage protection clause
         in its CC&Rs and in statements by its agent in
         contemporaneous arbitration proceedings,
         constitute slight evidence of fraud, unfairness,
         or oppression affecting the foreclosure sale
         that would justify setting it aside.

   The panel also asked the Nevada Supreme Court to
consider the related issue of what evidence a first deed of

    *
     The Honorable Eugene E. Siler, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N              3

trust holder must show to establish a causal relationship
between a misrepresentation that constitutes unfairness under
Nationstar Mortg., LLC v. Saticoy Bay LLC Series 2227
Shadow Canyon, 133 Nev. 740 (2017), and a low sales price.

                          ORDER

    We ask the Nevada Supreme Court to resolve an
important and open question of state law: what evidence
constitutes “slight evidence of fraud, unfairness, or
oppression” affecting a foreclosure sale that may be
“sufficient to authorize the granting” of equitable relief,
Nationstar Mortg., LLC v. Saticoy Bay LLC Series 2227
Shadow Canyon, 133 Nev. 740, 741, 749 (2017) (quoting
Golden v. Tomiyasu, 79 Nev. 503, 515 (1963)), when a
homeowner’s association (HOA) forecloses its superpriority
lien on a residence and sells the residence at a foreclosure
sale for a grossly inadequate sales price. Specifically in this
case, does a mortgage protection clause in the HOA’s
covenants, conditions, and restrictions (CC&Rs), along with
misrepresentations about the HOA’s superpriority lien made
to the lender in a separate proceeding, constitute such
evidence?

   The answer to that question is determinative here, and the
decisions of the Nevada Supreme Court do not provide
controlling precedent. See Nev. R. App. P. 5(a).

    “We invoke the certification process only after careful
consideration and do not do so lightly.” Kremen v. Cohen,
325 F.3d 1035, 1037 (9th Cir. 2003). In deciding whether to
certify this question to the Nevada Supreme Court, we
consider: “(1) whether the question presents ‘important public
4    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

policy ramifications’ yet unresolved by the state court;
(2) whether the issue is new, substantial, and of broad
application; (3) the state court’s caseload; and (4) ‘the spirit
of comity and federalism.’” Murray v. BEJ Mins., LLC,
924 F.3d 1070, 1072 (9th Cir. 2019) (en banc) (quoting
Kremen, 325 F.3d at 1037–38).

    The question in this case has “important public policy
ramifications” and is “of broad application” given that
Nevada HOAs continue to initiate foreclosures based on the
state’s superpriority lien statue. See NRS § 116.3116; see,
e.g., Bank of Am., N.A. v. Hernandez, No. 2:17-CV-03108
RFB CWH, 2019 WL 1442184, at *4 (D. Nev. Mar. 31,
2019) (involving an HOA foreclosure sale based on a
superpriority lien in December 2016, after the Nevada
Legislature amended the HOA superpriority statute in 2015);
see also Eli Segall, Despite Foreclosure Freeze, HOAs
Sending Default Notices, Las Vegas Review-Journal, June 11,
2020.1 In the spirit of comity and federalism accorded to
state courts to decide important issues of state law, see
Murray, 924 F.3d at 1071–72, we therefore respectfully
certify this question of law to the Nevada Supreme Court
under Rule 5 of the Nevada Rules of Appellate Procedure.
Per Rule 5(c)(1)–(6) of the Nevada Rules of Appellate
Procedure, we provide the following information for the
consideration of the Nevada Supreme Court.

    1
         Available at https://www.reviewjournal.com/business/
housing/despite-foreclosure-freeze-hoas-sending-default-notices-2050802/
(last accessed May 14, 2021).
    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N                   5

                                 I

    This case is one of a number of cases from Nevada
involving HOAs’ foreclosures of their superpriority liens on
properties in common interest communities. We begin by
describing the Nevada Supreme Court’s rulings on
(1) whether these superpriority liens extinguish first deeds of
trust and (2) whether the foreclosure of these liens can be set
aside under equitable principles.

                                A

                                 1

    Since 1991, the Nevada legislature has allowed HOAs in
Nevada to impose liens for past-due assessments on units
subject to their CC&Rs. See NRS § 116.3116.2 Subsection
1 of NRS § 116.3116 allows the HOA to place a lien on its
homeowners’ residences for any delinquent HOA assessment.
See NRS § 116.3116(1) (2012). Subsection 2 gives that HOA
lien priority over most other liens. See NRS § 116.3116(2)
(2012). The lien has two portions. The portion of the lien
securing nine months of HOA dues, maintenance, and
nuisance-abatement charges has priority over a first deed of
trust. See NRS § 116.3116(2)(b) (2012). This portion is
referred to as the “superpriority” lien, while the remainder of
the lien is referred to as the “subpriority” lien. See SFR Invs.
Pool 1 v. U.S. Bank, 130 Nev. 742, 754 (2014), superseded by
statute on other grounds as stated in Saticoy Bay LLC Series
9050 W Warm Springs 2079 v. Nev. Ass’n Servs., 135 Nev.
180, 180 (2019). In order to encourage lenders to finance the

    2
      The pertinent text of NRS § 116.3116 (2012) at the time of the
foreclosure sale in this case is set out in the Appendix.
6   U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

sale of a residence within a common interest community,
HOAs frequently included mortgage protection clauses in
their CC&Rs. As with the mortgage protection clause in this
case, such clauses typically state that the HOA would
subordinate its superpriority lien to the bank’s first deed of
trust. See, e.g., U.S. Bank, N.A., Tr. for Banc of Am. Funding
Corp. Mortg. Pass-Through Certificates, Series 2005-F v.
White Horse Ests. Homeowners Ass’n, 987 F.3d 858, 864 (9th
Cir. 2021) (White Horse).

     After the 2008 economic downturn, when HOAs began
initiating foreclosures of their superpriority liens to recover
unpaid assessments, it was an open question whether a
superpriority lien extinguished the first deed of trust on a
property. See SFR, 130 Nev. at 749. Before 2014, some
courts held that a superpriority lien only established a
payment priority over the first deed of trust. See id. at
747–48 (citing cases). In other words, the superpriority
portion of the lien had to be paid when the first deed of trust
was foreclosed, but it did not extinguish the first deed of trust.
See Bayview Loan Servicing, LLC v. Alessi & Koenig, LLC,
962 F. Supp. 2d 1222, 1225 (D. Nev. 2013). Because of the
uncertainty regarding whether HOA foreclosures
extinguished first deeds of trust, investors bought residences
at HOA foreclosure sales for roughly the amount of the
HOA’s liens. See id. at 1226. As one federal district court
explained, “[i]f investors believed that HOA foreclosures
extinguished first mortgages, homes sold at HOA foreclosure
sales would sell for significant fractions of their fair market
value, not for the tiny fractions of their fair market value
approximating the HOA lien at which HOA-foreclosed
homes invariably sell.” Id. This behavior indicated that “the
real estate community in Nevada clearly underst[ood] the
statutes” as establishing only a payment priority. Id. It was
    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N              7

not until 2014, two years after the foreclosure in this case,
that the Nevada Supreme Court authoritatively ruled that an
HOA’s foreclosure of the superpriority component of the lien
would extinguish a first deed of trust. See SFR, 130 Nev. at
743.

                              2

    After this ruling, lenders began arguing that HOA
foreclosure sales should be set aside under equitable
principles. See, e.g., U.S. Bank, N.A. v. Queen Victoria
#1720-104 NV W. Servicing LLC, No. 2:13-CV-01679-GMN,
2015 WL 419836, at *1 (D. Nev. Jan. 5, 2015). They argued
that under longstanding Nevada Supreme Court precedent,
courts have “the power, in an appropriate case, to set aside a
defective foreclosure sale on equitable grounds.” See Shadow
Wood Homeowners Ass’n v. N.Y. Cmty. Bancorp., Inc.,
132 Nev. 49, 58 (2016) (citing Golden, 79 Nev. at 514).
Golden first set forth the two-prong test for analyzing this
issue: a foreclosure sale may be set aside where there is
“inadequacy of price” along with “proof of some element of
fraud, unfairness or oppression as accounts for and brings
about the inadequacy of price.” 79 Nev. at 504; see also
Long v. Towne, 98 Nev. 11, 13 (1982) (“Mere inadequacy of
price is not sufficient to justify setting aside a foreclosure
sale, absent a showing of fraud, unfairness or oppression.”).

    Shadow Wood confirmed that Golden applied in the HOA
foreclosure sale context. See Shadow Wood, 132 Nev. at 58.
In Shadow Wood, the HOAs argued that Golden did not apply
because, in their view, all post-sale challenges to foreclosure
sales were barred under NRS § 116.31166. Id. at 51. Shadow
Wood held that this statute did not disrupt a court’s equitable
power to consider quiet title actions. Id. at 57. Shadow Wood
8   U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

then reiterated the two-part test from Golden: to set aside an
HOA foreclosure sale on equitable grounds, the lender must
show that “an association sold a property at its foreclosure
sale for an inadequate price” and “there must also be a
showing of fraud, unfairness, or oppression.” Id. at 60.
Considering the second prong of this test, Shadow Wood
indicated that if communications from the HOA and its
agents “rose to the level of misrepresentations and
nondisclosure” which prevented the lender’s ability to cure
the default, they “might support setting aside the sale.” Id.
at 62.

    Soon after Shadow Wood affirmed that Golden applied to
HOA foreclosures, the Nevada Supreme Court further
clarified how the test applies in this context in Shadow
Canyon, 133 Nev. at 741. Shadow Canyon suggested that the
two-part test included a sliding scale: “where the inadequacy
of the price is great, a court may grant relief based on slight
evidence of fraud, unfairness, or oppression.” Id. (emphasis
added) (citing Golden, 79 Nev. at 514–15). Again focusing
on the second part of the test, Shadow Canyon provided a
nonexhaustive list of “irregularities that may rise to the level
of fraud, unfairness, or oppression.” Id. at 749 n.11. One
such irregularity was “an HOA’s representation [to a lender]
that the foreclosure sale will not extinguish the first deed of
trust.” Id. In making this observation, the Nevada Supreme
Court relied on a case from a federal district court in Nevada,
ZYZZX2 v. Dizon, No. 2:13-cv-1307, 2016 WL 1181666, at
*5 (D. Nev. Mar. 25, 2016).

    Dizon applied the two-part test in Shadow Wood to set
aside an HOA foreclosure sale. Id. at *3–5. With respect to
the second prong of the test, Dizon focused on the HOA’s
mortgage protection clause in its CC&Rs and a letter that the
    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N              9

HOA sent to the lender and other interested parties. Id. at *5.
Both communications misrepresented that the HOA’s
foreclosure would not extinguish the first deed of trust. Id.
According to Dizon, this information “was legally inaccurate
and resulted in an unreasonably low sale price” because
“[h]igher bidders were dissuaded from offering a
commercially reasonable price based on the assertions that
they would take title subject to the mortgage loan.” Id.
Dizon concluded that this “defect in sale” satisfied the
unfairness prong “under the two part test laid out in Shadow
Wood.” Id.

    Since Shadow Wood and Shadow Canyon, the Nevada
Supreme Court has provided little additional guidance on
when a misrepresentation constitutes unfairness under the
second prong of the Shadow Wood test. The Nevada
Supreme Court has published two opinions applying the
Shadow Wood test, but these opinions do not address whether
misrepresentations are sufficient to satisfy the unfairness
prong. See Res. Grp., LLC as Tr. of E. Sunset Rd. Tr. v. Nev.
Ass’n Servs., Inc., 135 Nev. 48, 55–56 (2019) (holding that a
lender’s lack of diligence in the late delivery of a check for
the superpriority amount was not “fraud, unfairness or
oppression that affected the sales price”) (cleaned up); SFR
Invs. Pool 1, LLC v. U.S. Bank, N.A. as Tr. for Certificate
Holders of Wells Fargo Asset Sec. Corp., Mortg.
Pass-Through Certificates, Series 2006-AR4, 135 Nev. 346,
351–52 (2019) (Copper Ridge) (holding that an HOA’s
foreclosure sale in violation of a property owner’s automatic
bankruptcy stay, which caused the lender to delay its own
foreclosure sale, was not fraud, unfairness, or oppression
affecting the sale because the lender did not provide evidence
that the bankruptcy sale violation caused a lower price).
10 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

    The Nevada Supreme Court has issued unpublished
opinions addressing claims that an HOA’s misrepresentations
constitute fraud, unfairness, or oppression affecting the sale,
but these cases do “not establish mandatory precedent,” Nev.
R. App. P. 36(c)(2), and do not explain the distinction
between misrepresentations that constitute unfairness
affecting the sale and those that do not. For example, the
Nevada Supreme Court held that a mortgage protection clause
in an HOA’s CC&Rs did not meet this requirement, U.S.
Bank Nat’l Ass’n as Tr. for Benefit of HarborView 2005–08
v. Vistas Homeowners Ass’n, 432 P.3d 191, 2018 WL
6617731, at *1 (Nev. 2018) (unpublished), and distinguished
Dizon on the ground that “in addition to the CC&Rs’
covenant, the HOA sent a letter to the deed of trust
beneficiary affirmatively misrepresenting to the beneficiary
that it would not need to take any action to protect its deed of
trust.” Id. at *1 n.2. By contrast Lahrs Family Trust v.
JPMorgan Chase Bank, N.A. held that a pre-foreclosure letter
to the lender “constitute[d] unfairness because it gives the
impression that a purchase would remain subject to the first
DOT on the property . . . [which] produces a lower bid price,
because any buyer would take subject to the first deed of
trust.” 446 P.3d 1157, 2019 WL 4054161, at *2 (Nev. 2019)
(unpublished).

    To summarize, the question of whether foreclosure of a
superpriority lien extinguished a first deed of trust was
unsettled prior to SFR. Once SFR ruled that such a
foreclosure extinguished the first deed of trust, SFR, 130 Nev.
at 743, lenders argued that courts should equitably set aside
these sales based on misrepresentations that the HOAs and
their agents made to the lenders prior to the foreclosures, see,
e.g., Queen Victoria, 2015 WL 419836, at *1. Although the
Nevada Supreme Court has held that such equitable set asides
    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N 11

are permissible, Shadow Wood, 132 Nev. at 58, there is no
binding guidance on when a court can equitably set aside a
sale based on an HOA’s misrepresentation in a situation such
as the one before us here.

                              B

     This uncertainty over when courts may set aside HOA
foreclosure sales based on fraud, unfairness, or oppression
affecting the sale serves as the backdrop for the facts of this
case. In March 2007, Jacqueline Hagerman executed a deed
of trust on the property located at 10702 La Crescenta Court,
Las Vegas, Nevada 89141 (the La Crescenta property) to
secure a loan for $444,000. The deed of trust named
Mortgage Electronic Registration Systems, Inc. (MERS),
acting solely as a nominee for the lender and its successors
and assigns, as the beneficiary and Countrywide Home
Loans, Inc. as the lender. In 2011, MERS assigned its
interest to Bank of America, N.A, which made a further
assignment to U.S. Bank, N.A. in 2013.

    The La Crescenta property is subject to the CC&Rs of the
Southern Highlands Community Association (Southern
Highlands HOA). The CC&Rs require residents to pay
annual assessments, and gives the Southern Highlands HOA
a right to impose a lien for unpaid assessments against the
property. As to the priority of that lien, the CC&Rs state that
“[t]he lien of assessments, including interest and costs, shall
be subordinate to the lien of any first Mortgage upon the
Unit.”

    Hagerman failed to make assessment payments owed to
the Southern Highlands HOA. In July 2010, the Southern
Highlands HOA’s agent, Alessi & Koenig, LLC (Alessi),
12 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

recorded a notice of delinquent assessment lien against the La
Crescenta property. A few months later, Alessi recorded a
notice of default and election to sell based on the lien, and
subsequently recorded a notice of trustee’s sale, noticing a
September 2012 foreclosure sale. SFR Investments Pool I,
LLC (SFR) purchased the La Crescenta property at the
foreclosure sale for $8,200. At the time of the sale, the
property had a fair market value of $293,000.

     While the Southern Highlands HOA foreclosed on the La
Crescenta property, Southern Highlands and Alessi were
engaged in litigation with U.S. Bank’s predecessor-in-interest
in another assessment lien case, BAC Home Loans Servicing,
LP v. Stonefield II HOA, 2:11-cv-00167-JCM-RJJ, 2011 WL
2976814 (D. Nev. July 21, 2011) (the Stonefield litigation).
The Stonefield litigation involved a dispute between U.S.
Bank’s predecessor-in-interest, several homeowner’s
associations, including the Southern Highlands HOA, and
their agents, including Alessi. The central issue in the
litigation was whether a beneficiary of a first deed of trust on
a property subject to CC&Rs could tender payment for the
superpriority amount of the HOAs’ liens before the HOAs
foreclosed their liens. The dispute was subject to arbitration.
See Stonefield, 2011 WL 2976814, at *1–2. In the 2012
arbitration proceedings, Alessi accepted the view that a
HOA’s superpriority lien did not attach until the lender
foreclosed on the first deed of trust. This assumption
reflected the uncertain state of the law prior to SFR, where, as
discussed above, many courts held that the superpriority lien
merely established an HOA’s right to payment. See SFR,
130 Nev. at 747–48. In light of this background principle, the
arbitrator concluded that the beneficiary of the first deed of
trust could not tender a payment specifically targeted to pay
off the superpriority portion of the lien because the HOA did
     U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N 13

not have to accept a payment before its superpriority lien
attached.

    After the Southern Highlands HOA foreclosed its lien on
the La Crescenta property (and after the Stonefield
arbitration), U.S. Bank filed a complaint against the Southern
Highlands HOA and SFR, seeking to quiet title to the La
Crescenta property. The complaint asserted four claims:
quiet title; breach of NRS § 116.1113; wrongful foreclosure;
and injunctive relief. SFR filed a counterclaim for quiet title.
The parties filed cross-motions for summary judgment on all
claims.

     In March 2019, the district court entered summary
judgment in favor of the Southern Highlands HOA and SFR.
As part of its ruling, the district court held that there was no
fraud, unfairness, or oppression affecting the sale, and
therefore it should not be equitably set aside under Shadow
Canyon.3       The court acknowledged that an HOA’s
representation that a foreclosure sale will not extinguish the
first deed of trust can rise to the level of fraud, unfairness, or
oppression sufficient to set-aside the sale. But the district
court concluded that neither the mortgage protection clause
in the CC&Rs nor Alessi’s representation in the Stonefield
litigation rose to that level, because neither was a “direct
misrepresentation” of the Southern Highlands HOA lien’s
priority.

    3
       The court also held that NRS § 116.3116 (creating the superpriority
lien for HOA assessments) was not facially unconstitutional under the Due
Process Clause of the Fourteenth Amendment. The parties no longer
dispute this point.
14 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

                              II

    On appeal, U.S. Bank argues that the district court erred
in granting summary judgment in favor of SFR and the
Southern Highlands HOA because, as a matter of law, the
sales price of the La Crescenta property was grossly
inadequate and fraud, unfairness, or oppression affected the
sale. U.S. Bank argues that the sales price was grossly
inadequate because SFR bought the La Crescenta property for
roughly three percent of its fair market value. Next, it
contends that the mortgage protection clause in the CC&Rs
and Alessi’s misrepresentations to its predecessor-in-interest
in the Stonefield litigation qualify as evidence of unfairness
affecting the sale.

     We start with the rule from Golden, reaffirmed in Shadow
Wood, that an HOA’s “nonjudicial foreclosure sale may be
set aside . . . upon a showing of grossly inadequate price plus
fraud, unfairness, or oppression.” Shadow Wood, 132 Nev.
at 56 (cleaned up) (citing Long, 98 Nev. at 13); see also
Golden, 79 Nev. at 514. As a preliminary matter, we
conclude that the sales price here was grossly inadequate.
Shadow Wood dictates that “a court is warranted in
invalidating a sale where the price is less than 20 percent of
fair market value.” Id. at 60 (quoting Restatement (Third) of
Prop.: Mortgages § 8.3 cmt. b (1997)). Because the sales
price here of approximately three percent of fair market value
sits well under 20 percent, we hold that it is grossly
inadequate. See id.

    We need the Nevada Supreme Court’s guidance, however,
on the second question: whether the misrepresentations made
by the HOA and its agent in this case, specifically the
mortgage protection clause in the CC&Rs and Alessi’s
    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N 15

representation in arbitration that the superpriority lien would
not extinguish the first deed of trust, constitute sufficient
evidence of fraud, unfairness, or oppression affecting the sale
so as to justify setting it aside. Both the HOA and U.S. Bank
argue that the Nevada Supreme Court’s legal framework
supports their position. The HOA contends that the Nevada
Supreme Court has never held in a published opinion that a
mortgage protection clause in an HOA’s CC&Rs is sufficient
evidence of fraud, unfairness, or oppression, and that the
Nevada Supreme Court’s unpublished opinions are to the
contrary. Further buttressing the HOA’s view, we held in an
opinion published after argument in this case that a mortgage
protection clause alone does not “constitute fraud, unfairness,
or oppression” affecting the sale. White Horse, 987 F.3d
at 867. The HOA also argues that U.S. Bank has not
presented any evidence that any misrepresentation actually
resulted in a lower sales price. See Res. Grp., 135 Nev. at 55.

     U.S. Bank, by contrast, contends that the Nevada
Supreme Court has indicated that an HOA’s
misrepresentations can rise to the level of unfairness and
satisfy the second prong of the test. See Shadow Wood,
132 Nev. at 62. Further, U.S. Bank argues, Dizon (cited with
approval in Shadow Canyon) makes clear that a mortgage
protection clause, along with another misrepresentation like
the statements in the Stonefield litigation that the
superpriority lien would not attach until the lender foreclosed,
are sufficient. Although the Stonefield arbitration did not
concern the La Crescenta property, Alessi’s position in that
litigation was arguably a “known policy” applicable to all
properties. See 7510 Perla Del Mar Ave Trust v. Bank of
Am., N.A., 136 Nev. 62, 66–67 (2020) (en banc) (holding that
when an HOA servicer “had a known policy” of refusing to
accept tenders of less than the full lien amount, a lender could
16 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

be excused from making tender, even though the “known
policy” stemmed from unrelated cases). Finally, at the time
of the foreclosure sale, it was an open question whether
foreclosure of an HOA lien would extinguish a first deed of
trust. See SFR, 130 Nev. at 747–48. In light of this
uncertainty, it would be reasonable to purchase residences at
such foreclosure sales at amounts roughly approximating the
value of the HOA liens, due to the risk that the first deed of
trust would continue to encumber the properties. See
Bayview Loan, 962 F. Supp. 2d at 1226. In that context, U.S.
Bank argues, the misrepresentations of the HOA and its
agents that the first deed of trust would survive the
foreclosure sale would necessarily affect the sale.

    We need the Nevada Supreme Court’s guidance to resolve
this dispute. As explained above, the cases published since
Shadow Wood and Shadow Canyon have not assessed
whether HOAs’ common misrepresentations in their
mortgage protection clauses, or elsewhere, constitute
unfairness sufficient to set aside the sale. See Copper Ridge,
135 Nev. at 352; Res. Grp., 135 Nev. at 55–56. Moreover,
the unpublished cases provide little direction to help us
discern when misrepresentations rise to the level of
unfairness affecting the sale, and when they do not. Compare
HarborView, 2018 WL 6617731, at *1 n.2, with Lahrs, 2019
WL 4054161, at *2.

                             III

   Accordingly, we respectfully certify the following
question to the Nevada Supreme Court:

       Whether, under Nevada law, an HOA’s
       misrepresentation that its superpriority lien
    U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N 17

        would not extinguish a first deed of trust,
        made both in the mortgage protection clause
        in its CC&Rs and in statements by its agent in
        contemporaneous arbitration proceedings,
        constitute slight evidence of fraud, unfairness,
        or oppression affecting the foreclosure sale
        that would justify setting it aside.

    In answering this question, we also ask the Nevada
Supreme Court to consider the related issue of what evidence
a first deed of trust holder must show to establish a causal
relationship between a misrepresentation that constitutes
unfairness under Shadow Canyon and a low sales price. See
Res. Grp., 135 Nev. at 55.

                               IV

     The Clerk of Court is hereby directed to transmit to the
Nevada Supreme Court, under official seal of the Ninth
Circuit, a copy of this order and request for certification and
all relevant briefs and excerpts of record. Submission of this
case is withdrawn and the case will be submitted following
receipt of the Nevada Supreme Court’s opinion on the
certified question or notification that it declines to answer the
certified question. The Clerk is directed to administratively
close this docket pending further order. The panel shall retain
jurisdiction over further proceedings in this court. The
parties shall notify the Clerk of this court within one week
after the Nevada Supreme Court accepts or rejects
18 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

certification. In the event the Nevada Supreme Court grants
certification, the parties shall notify the Clerk within one
week after the Court renders its opinion.

  QUESTION           CERTIFIED;         PROCEEDINGS
STAYED.

Sandra S. Ikuta
Circuit Judge
   U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N 19

                         Appendix

At the time of the foreclosure sale in this case, NRS
§ 116.3116 (2012) read, in pertinent part:

      1. The association has a lien on a unit for any
      construction penalty that is imposed against
      the unit’s owner pursuant to NRS 116.310305,
      any assessment levied against that unit or any
      fines imposed against the unit’s owner from
      the time the construction penalty, assessment
      or fine becomes due. Unless the declaration
      otherwise provides, any penalties, fees,
      charges, late charges, fines and interest
      charged pursuant to paragraphs (j) to (n),
      inclusive, of subsection 1 of NRS 116.3102
      are enforceable as assessments under this
      section. If an assessment is payable in
      installments, the full amount of the
      assessment is a lien from the time the first
      installment thereof becomes due.

      2. A lien under this section is prior to all other
      liens and encumbrances on a unit except:

      (a) Liens and encumbrances recorded before
      the recordation of the declaration and, in a
      cooperative, liens and encumbrances which
      the association creates, assumes or takes
      subject to;

      (b) A first security interest on the unit
      recorded before the date on which the
      assessment sought to be enforced became
20 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

      delinquent or, in a cooperative, the first
      security interest encumbering only the unit’s
      owner’s interest and perfected before the date
      on which the assessment sought to be
      enforced became delinquent; and

      (c) Liens for real estate taxes and other
      governmental assessments or charges against
      the unit or cooperative.

      The lien is also prior to all security interests
      described in paragraph (b) to the extent of any
      charges incurred by the association on a unit
      pursuant to NRS 116.310312 and to the extent
      of the assessments for common expenses
      based on the periodic budget adopted by the
      association pursuant to NRS 116.3115 which
      would have become due in the absence of
      acceleration during the 9 months immediately
      preceding institution of an action to enforce
      the lien, unless federal regulations adopted by
      the Federal Home Loan Mortgage
      Corporation or the Federal National Mortgage
      Association require a shorter period of
      priority for the lien. If federal regulations
      adopted by the Federal Home Loan Mortgage
      Corporation or the Federal National Mortgage
      Association require a shorter period of
      priority for the lien, the period during which
      the lien is prior to all security interests
      described in paragraph (b) must be determined
      in accordance with those federal regulations,
      except that notwithstanding the provisions of
      the federal regulations, the period of priority
U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N 21

  for the lien must not be less than the 6 months
  immediately preceding institution of an action
  to enforce the lien. This subsection does not
  affect the priority of mechanics’ or
  materialmen’s liens, or the priority of liens for
  other assessments made by the association.
22 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

                 Supplemental Material

   Pursuant to Rule 5 of the Nevada Rules of Appellate
Procedure, we include here the designation of the parties who
would be the appellants and appellee in the Nevada Supreme
Court, as well as the names and addresses of counsel.

For Appellants U.S. Bank, N.A., Trustee for the Holders of
the J.P. Morgan Mortgage Trust 2007-S3, Nationstar
Mortgage LLC, and Bank of America, NA:

Richard Aaron Chastain
Bradley Arant Boult Cummings LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, AL 35203

Stephen Colmery Parsley
Bradley Arant Boult Cummings LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, AL 35203

Ariel Edward Stern
Akerman LLP
1635 Village Center Circle
Suite 200
Las Vegas, NV 89134

Donna M. Wittig
Akerman LLP
1635 Village Center Circle
Suite 200
Las Vegas, NV 89134
   U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N 23

For Appellee Southern Highlands Community Association:

Kurt R. Bonds
Alverson Taylor & Sanders
6605 Grand Montecito Parkway
Suite 200
Las Vegas, NV 89149

LeAnn Sanders
Alverson Taylor & Sanders
6605 Grand Montecito Parkway
Suite 200
Las Vegas, NV 89149

For Appellee SFR Investments Pool 1, LLC:

Diana S. Ebron
Kim Gilbert Ebron
7625 Dean Martin Drive
Suite 110
Las Vegas, NV 89139

Jacqueline A. Gilbert
Kim Gilbert Ebron
7625 Dean Martin Drive
Suite 110
Las Vegas, NV 89139

Jason Martinez
Kim Gilbert Ebron
7625 Dean Martin Drive
Suite 110
Las Vegas, NV 89139
24 U.S. BANK V. SOUTHERN HIGHLANDS CMTY. ASS’N

Karen Hanks
Messner Reeves, LLP
8945 West Russell Road
Suite 300
Las Vegas, NV 89148