Interpreting Nevada’s Right of Redemption: Ownership During the Redemption Period Following an HOA Foreclosure.
During the 78th legislative session, the Nevada Legislature amended the foreclosure provisions of NRS Chapter 116. One of the many changes they enacted provided a homeowner that loses the property through an association’s foreclosure with a “right of redemption,” as follows:
Every sale of a unit pursuant to NRS 116.31162 to 116.31168, inclusive, vests in the purchaser the title of the unit’s owner subject to the right of redemption provided by this section.
NRS 116.31166(1) (emphasis added).
What is the Right of Redemption?
As stated above, every sale now provides a right of redemption which, in essence, is a period of sixty (60) days, during which the unit’s owner may get the property back (a.k.a. redeem the property) by paying the purchaser the price it paid at the foreclosure, plus interest at 1% per month. In addition, the redeemer must also reimburse the purchaser for any assessments, taxes, or payments made to pay off or down other liens, and any amounts reasonably expended to maintain and repair the property. Thus, by way of example, if an investor purchased a property at an association’s foreclosure for $2,000, then paid quarterly ad valorum (county) taxes of $450, and was required to repair the air conditioner at a cost of $200, the former owner would be required to pay the purchaser $2,650, plus 1% interest, to redeem the property.
The Importance of Determining Who Holds Legal Title.
Because a former owner can redeem the foreclosed property, the statute also provides that the purchaser does not immediately receive a deed. Instead, the purchaser is provided with a Certificate of Sale. See NRS 116.31166(2)(a). If the former owner fails to redeem during the sixty-day period, only then does the purchaser receive a deed. This new structure leads to the inevitable question of who owns the property during the redemption period.
Determining the answer to the question of who owns the property is important for both the purchaser and the association alike. This is so because the answer determines whether the purchaser is entitled to immediate possession and specifies who is responsible for the ongoing assessments following the foreclosure. This is especially true when the association purchases the property through a credit bid, which is not uncommon. For instance, if the purchaser does not own the property until the right of redemption expires, the purchaser is not entitled to immediate possession. Additionally, the purchaser is not responsible to pay the assessments for the property moving forward. Yet, if the purchaser owns the property immediately after the foreclosure, not only may the purchaser evict the former owner, but the purchaser is also liable for the assessments.
Normally, attorneys would first look to recent court decisions as an aid in answering questions like this because, importantly, the Nevada judiciary is responsible for interpreting a statute. However, because the statute is new there are no judicial decisions interpreting it and thereby providing clarity to the issue. Thus, purchasers and associations faced with this question must, as best as possible, determine what a court may hold when it is faced with this issue.
Interpreting Nevada’s Right of Redemption.
In order to determine what the Nevada courts will conclude, it is important to mimic the process the courts use when interpreting a statute. Courts have a series of rules it uses when interpreting a statute. Nevada courts begin by reviewing the plain language of the statute. If the language of the statute is clear and unambiguous, the court enforces the statute by attributing the plain meaning of the words used unless such an interpretation would yield an absurd result.[1] Indeed, if a statute is clear, courts have no authority to look beyond the plain language of the statute.[2] If, however, the statute is ambiguous, legislative intent becomes the controlling factor, allowing courts to use reason and public policy in considering the correct interpretation.[3] Importantly, a statute is ambiguous when the statute is susceptible to more than one reasonable but inconsistent interpretation.[4]
Therefore, in order to determine who owns the property during the redemption period, the plain language of the statue must be reviewed to determine if its plain meaning is clear or if it is ambiguous. Fortunately, in this instance, the statute is uncharacteristically clear, stating:
Every sale of a unit pursuant to NRS 116.31162 to 116.31168, inclusive, vests in the purchaser the title of the unit’s owner subject to the right of redemption provided by this section.
NRS 116.31166(1) (emphasis added). The important words in the statute are “vests” and “title.” Neither word is specifically defined within NRS 116. The word “vests” means to confer or bestow. The term “title,” in relation to real property generally refers to the fee simple interest. Thus, attributing the plain meaning to the language used, every foreclosure sale bestows on the purchaser the fee simply interest of the former owner, even though that vested title is nevertheless subject to the right of redemption. Thus, because the statute is clear and unambiguous, there is no need to look any further to determine the legislature’s intent. Moreover, this interpretation is supported by the plain language used later in statute, where it states:
A unit sold pursuant to NRS 116.31162 to 116.31168, inclusive, may be redeemed by the unit’s owner whose interest in the unit was extinguished by the sale, or his or her successor in interest, or any holder of a recorded security interest that is subordinate to the lien on which the unit was sold, or that holder’s successor in interest.
NRS 116.116(3) (emphasis added). The section of the statute above clearly states that a unit’s owner’s interest is “extinguished” by an association’s foreclosure. The word “extinguished” is a powerful word that clearly conveys the meaning of the statute, declaring that the former owner’s title is wipe out, or “extinguished” by the foreclosure.
Conclusion
Thus, even though a deed is not provided until the redemption period ends, the title of the former owner nevertheless immediately vests in the purchaser. Having determined that the purchaser has the immediate right to possession, as the fee simple title holder of the property, even during the redemption period, it is clear that the purchaser may evict the former owner, or those who occupy the property through the former owner (e.g. tenants). Further, from the date of the foreclosure sale, the purchaser is responsible for paying the assessments that accrue from that date forward.
[1] This is the plain meaning rule. See Harris Assocs. V. Clark Cty Sch. Dist., 119 Nev. 638, 641-42 (2003); See Banegas v. SIIS, 117 Nev. 222, 225 (2001); Diamond v. Swick, 117 Nev. 671, 675 (2001).
[2] Id.
[3] Harris Assocs 119 Nev. At 641-42.
[4] McKay v. Bd. Of Supervisors, 102 Nev. 644, 649 (1986).