Court Opinion

ID: 3165529
Source: CourtListenerOpinion
Date Created: 2015-12-24 16:05:06.495431+00
Date Added: 2024-06-11T11:59:07.822267
License: Public Domain

attach the CC&Rs. Nevertheless, the CC&Rs are integral to the quiet title
                      claim in the complaint. Further, respondent requested judicial notice of
                      the CC&Rs, which appellant did not oppose. Thus, "no party questions the
                      authenticity of the document."     Id. (quoting United States v. Corinthian
                      Coils., 655 F.3d 984, 999 (9th Cir. 2011)).
                                  The main issue on appeal is whether the incorporation of
                      superpriority language from NRS Chapter 116 in a common interest
                      community's (CIC) CC&Rs renders this court's SFR decision applicable to
                      the CIC's foreclosure. See SFR Invs. Pool I, L.L.C. v. U.S. Bank, N.A.,   130
                      Nev., Adv. Op. 75, 334 P.3d 408 (2014). Although NRS Chapter 116 does
                      not by its terms apply, since this is a nonresidential community, the
                      CC&Rs incorporate NRS 116.3116(2) (2013)'s superpriority language
                      verbatim.   See NRS 116.12075(1). Thus, our interpretation of the same
                      language found in NRS 116.3116(2) (2013) provides meaningful guidance
                      to interpreting the CC&Rs here, and suggests that the CC&Rs create a
                      split priority lien for the CIC where the superpriority portion of the lien
                      has true priority over respondent LNV's first security interest, and the
                      foreclosure of that superpriority portion thus would extinguish the
                      security interest. See SFR Invs., 130 Nev., Adv. Op. 75, 334 P.3d at 412.
                                  The CC&R sections implicated in this appeal are contained in
                      Article 6, which concerns the "Covenant for Maintenance Assessments to
                      Association." Section 6.1 explains that the lot owners agree to pay
                      assessments and other costs and fees, all of which "shall be a continuing
                      lien upon the Lot against which each such assessment is made." When a
                      lot owner becomes delinquent on assessments, Section 6.11 gives the CIC
                      the authority to record a notice of delinquent assessment. The nature of

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                   the CIC's lien is explained in Section 6.13, which states, including the
                   1997 amendments,' that:
                                       Section 6.13. Continuing Lien. The lien
                                shall also secure all other payments and/or
                                assessments which shall become due and payable
                                with respect to said Lot following such recording,
                                and all costs (including attorneys' fees and
                                penalties) and interest accruing thereon. Unless
                                sooner satisfied or released and its enforcement
                                initiated, said lien shall continue for a period of
                                three (3) years from the date of recordation of the
                                notice of assessment. When a notice of assessment
                                has been recorded, such assessment shall
                                constitute a lien on each respective Lot, prior and
                                superior to all other liens, except (i) all taxes,
                                bonds, assessments and other levies which, by
                                law, would be superior thereto, and (ii) the lien or
                                charge of any first mortgage of record except as
                                otherwise provided in section 6.19 herein as
                                amended.
                   (Emphases added). The CC&Rs also grant the CIC a power of sale to
                   foreclose on the lien:
                                      Section 6.15. Foreclosure. A power of sale is
                                conferred in the Association for the enforcement of
                                any assessment lien. Each assessment lien may
                                be foreclosed pursuant to Nevada Revised Statute
                                116.31162 and 116.31164 as from time to time
                                may be amended or any successor statute.
                   A later section further refines the CIC's lien in relation to the first security
                   interest:

                          'The recitals in the amendment document explain that these
                   changes were "to facilitate purchasers obtaining financing under Section
                   503 and 504 of the Small Business Industrial Act of 1959.. . by
                   subordinating the assessment lien to the two Deeds of Trust required for
                   participation in the 'SBA 504 loan' program"

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                                  Section 6.18. Liens/Security Interest. A lien
                             under this section is prior to all other liens and
                             encumbrances on the Lot except:
                                    (a) Liens and encumbrances recorded before
                             the recordation of the declaration;
                                  (b) Liens for real estate taxes and other
                             governmental assessments or charges against the
                             Lot;
                                    (c) Other than is provided in this section, a
                             first security interest on the Lot recorded before
                             the date on which the assessments sought to be
                             enforced became delinquent.
                                           i) Super Priority. The lien is also prior
                             to all security interest described in paragraph (c)
                             to the extent of the assessments for Association
                             Property based on the periodic budget adopted by
                             the Association which would have become due in
                             the absence of acceleration during the six (6)
                             months ("super priority") immediately preceding
                             the institution of an action to enforce the lien.
                 Finally, (amended) Section 6.19 states:
                                   Section 6.19. Subordination. The lien of
                             assessments provided for herein shall be
                             subordinate to the lien of any first Mortgage upon
                             a Lot and shall also be subordinate to the second
                             Mortgage or Deed of Trust required for
                             participation in financing under Sections 503 and
                             504 of the Small Business Investment Act, as
                             amended. The lien of assessments shall not be
                             subordinate to any second or other lien except as
                             provided herein.
                 "Mortgage," as used in the CC&Rs, includes deeds of trust.
                             Appellant Saticoy argues that Section 6.18 of the CC&Rs
                 contains substantially the same language as NRS 116.3116(2) (2013)'s
                 "superpriority" language, which this court confirmed grants an association
                 a true priority lien over the first security interest in SFR Investments, 130
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                   Nev., Adv. Op. 75, 334 P.3d 408. Thus, Saticoy submits that we should
                   interpret Section 6.18 the same and hold that the CIC's superpriority lien
                   had true priority over LNV's interest. We agree.
                               LNV argues that because the CIC is nonresidential and
                   incorporated only NRS 116.31162 (2013) and NRS 116.31164 (2005) when
                   granting it a power of sale, and not NRS 116.3116 (2013), our precedent
                   interpreting NRS 116.3116(2) (2013) has no relevance to the lien priority
                   outlined in the CC&Rs. See NRS 116.1201(2)(b) (declining to apply NRS
                   Chapter 116 to: "A planned community in which all units are restricted
                   exclusively to nonresidential use unless the declaration provides that this
                   chapter or a part of this chapter does apply to that planned community
                   pursuant to NRS 116.12075"), NRS 116.12075(1) (stating that NRS
                   Chapter 116 may apply to the extent the declaration states that: (1) the
                   entire chapter applies, (2) only NRS 116.001-116.2122 and 116.31166-
                   116.31168 apply, or (3) only NRS 116.31166-116.31168 apply). Though
                   LNV is correct that this is a nonresidential CIC and the CC&Rs do not
                   explicitly reference NRS 116.3116 (2013), the CC&Rs incorporated NRS
                   116.3116(2) (2013)'s superpriority language verbatim, rather than just by
                   citation. NRS 116.3116(2) (2013) states, in pertinent part:
                                      A lien under this section is prior to all other
                               liens and encumbrances on a unit except:

                               (b) A first security interest on the unit recorded
                               before the date on which the assessment sought to
                               be enforced became delinquent . .

                               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
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                           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.
                (Emphasis added). Section 6.18 similarly states that:
                                   A lien under this section is prior to all other
                            liens and encumbrances on the Lot except:

                                   (c) Other than is provided in this section, a
                            first security interest on the Lot recorded before
                            the date on which the assessments sought to be
                            enforced became delinquent.
                                          i) Super Priority The lien is also prior
                            to all security interest described in paragraph (c) to
                            the extent of the assessments for Association
                            Property based on the periodic budget adopted by
                            the Association which would have become due in
                            the absence of acceleration during the six (6)
                            months ("super priority") immediately preceding
                            the institution of an action to enforce the lien.
                (Emphasis added). So, just like NRS 116.3116(2) (2013), Section 6.18 says
                that the superpriority lien is "prior to" the first security interest,
                rendering the analysis of SFR Investments applicable. See 130 Nev., Adv.
                Op. 75, 334 P.3d at 412.
                            LNV protests that this reading would render Section 6.13,
                which excepts "the lien or charge of any first mortgage" from the general
                rule that the association lien is prior and superior to all other liens, and
                Section 6.19, which states that the association's lien "shall be subordinate
                to the lien of any first Mortgage," meaningless. Instead, LNV argues that
                the only way to meaningfully read the CC&R sections together is to find
                that Section 6.18's superpriority lien is really only a priority for payment,
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                  and thus not a true lien. That "prior to" means something other than a
                  prior lien capable of extinguishing junior interests when foreclosed upon,
                  however, was rejected by SFR Investments. Id. at 412-14. And the CC&R
                  provisions can be reconciled, while still maintaining the superpriority
                  lien's true priority status, as such: after the CIC is paid the superpriority
                  amount from its foreclosure sale proceeds, Sections 6.13 and 6.19 entitle
                  LNV to share in the remaining proceeds. This is also consistent with
                  Section 6.15, which adopted NRS 116.31164 (2005), and under which LNV
                  would be a "subordinate claim of record" entitled to share the proceeds
                  after the CIC's sale expenses and superpriority lien amount are paid. 2
                  Therefore, though not controlling in the sense that this is a nonresidential
                  community that did not, by operation of law, opt into NRS Chapter 116's
                  superpriority statute,       SFR Investments          provides a persuasive

                  interpretation of the superpriority language in the CIC's CC&Rs that is

                        2 NRS  116.31164(3)(c) (2005) requires the person conducting the
                  association's sale to apply the proceeds in the following order:

                                (1) The reasonable expenses of sale;
                                (2) The reasonable expenses of securing possession
                                before sale, holding, maintaining, and preparing
                                the unit for sale, including payment of taxes and
                                other governmental charges, premiums on hazard
                                and liability insurance, and, to the extent provided
                                for by the declaration, reasonable attorney's fees
                                and other legal expenses incurred by the
                                association;
                                (3) Satisfaction of the association's lien;
                                (4) Satisfaction in the order of priority of any
                                subordinate claim of record; and
                                (5) Remittance of any excess to the unit's owner.

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                still reconcilable with the CC&Rs as a whole. Indeed, any other reading
                would nullify the language in Section 6.18(c)(1). See Quirrion v. Sherman,
                109 Nev. 62, 65, 846 P.2d 1051, 1053 (1993) ("[W]here two interpretations
                of a contract provision are possible, a court will prefer the interpretation
                which gives meaning to both provisions rather than an interpretation
                which renders one of the provisions meaningless."); see also Diaz, 120 Nev.
                at 73, 84 P.3d at 665-66 ("The rules of construction governing the
                interpretation of contracts apply to the interpretation of restrictive
                covenants for real property.").
                            LNV further argues that applying the holding in             SFR
                Investments here would interfere with its vested contractual rights, citing
                to Coral Lakes Community Ass'n, Inc. v. Busey Bank, N.A.,     30 So. 3d 579,
                581-84 & n.3 (Fla. Dist. Ct. App. 2010) (holding that a CC&R clause that
                subordinated the association's lien to the first mortgage's interest
                controlled over a later-enacted statute that would have interfered with
                that subordination because the statute came into effect after the CC&Rs
                and thus would have implicated• "constitutional concerns about
                impairment of vested contractual rights"). This court recognized Coral
                Lakes in SFR Investments, and found its concerns did not apply because
                the CC&Rs at issue, which contained a mortgage savings clause, were
                recorded after the Legislature adopted NRS Chapter 116 so the
                respondent bank was aware that the statutory superpriority lien existed
                and could not be waived per NRS 116.1104. SFR Invs., 130 Nev., Adv. Op.
                75, 334 P.3d at 419 & n.7 (recognizing that NRS Chapter 116 prohibited
                waiver of rights conferred by it unless expressly allowed).
                            Similarly, LNV's security interest did not come into existence
                until 2007, well after the 1991 enactment of NRS Chapter 116 and the

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                     1996 recordation of the CIC's CC&Rs; 3 thus, there is no analogous later-
                     enacted statute that might threaten LNV's contractual rights. The
                     priority language in Section 6.18 being interpreted here has remained
                     unchanged in the CC&Rs since their original recordation, and using SFR
                     Investments as persuasive authority to interpret that language is not the
                     same as enacting a new statutory rule. And that the NRS Chapter 116
                     non-waiver provision does not apply to the CIC further proves our point:
                     the drafter of the CC&Rs was not legally obligated to grant the CIC a
                     superpriority lien, but nevertheless did.
                                    We conclude that the district court therefore erred in
                     dismissing the complaint for failure to state a claim upon which relief can
                     be granted. Accordingly, we
                                    ORDER the judgment of the district court REVERSED AND
                     REMAND this matter to the district court for proceedings consistent with
                     this order.
                                                                         , C.J.

                                    Chtin
                     Parraguirre

                                                                    Saitta

                                                                                           J.
                      Gibbons

                            3 See   1991 Nev. Stat., ch. 245, § 1-128, at 535-79.

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                cc:   Hon. Jerry A. Wiese, District Judge
                      Law Offices of Michael F. Bohn, Ltd.
                      Sylvester & Polednak, Ltd.
                      Lewis Roca Rothgerber LLP/Las Vegas
                      Eighth District Court Clerk

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