Ninth Circuit Holds Opt-In Foreclosure Notice Statute Violates Due Process

Photo of Ryan M. Cunningham

The United States Court of Appeals for the Ninth Circuit has joined the Fifth Circuit in finding that a statutory scheme in which mortgage lenders were required to affirmatively opt-in to receive notice of foreclosures by homeowners’ associations violates the lenders’ due-process rights under the 14th Amendment. Bourne Valley Court Trust v. Wells Fargo Bank, N.A., No. 15-15233, 2016 WL 4254983 (9th Cir. Aug. 12, 2016).

Nevada’s homeowners’ association foreclosure statute, NRS § 116.3116, et seq., set out a procedure whereby homeowners’ associations were only required to provide notice to a mortgage lender of an impending foreclosure if the lender had affirmatively requested notice. The Fifth Circuit had addressed a similar clause in Louisiana’s foreclosure statute, finding that the opt-in scheme unconstitutionally shifted “the entire burden of ensuring adequate notice to an interested property owner regardless of the circumstances.” Small Engine Shop, Inc. v. Cascio, 878 F.2d 883, 884 (5th Cir. 1989).

The Ninth Circuit agreed with the Fifth Circuit’s logic, finding that the Nevada provision unconstitutionally shifted the burden of ensuring adequate notice to the mortgage lender from the foreclosing homeowners’ association. “It did so without regard for: (1) whether the mortgage lender was aware that the homeowner had defaulted on her dues to the homeowners’ association, (2) whether the mortgage lender’s interest had been recorded such that it would have been easily discoverable through a title search, or (3) whether the homeowners’ association had made any effort whatsoever to contact the mortgage lender.” With those shifting of burdens, the Ninth Circuit found the opt-in scheme violated the 14th Amendment’s due process requirements, and was unconstitutional.

For more information about our banking law practice, please visit our banking law page.


Fitch Law Partners LLP reports news and insights on complex litigation topics. Clients, colleagues and friends may receive The Fitch Briefs by signing up here.