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First Financial Bank, N.A. v. Lane

Supreme Court of Nevada

December 24, 2014

FIRST FINANCIAL BANK, N.A., Appellant,
v.
GORDON R. LANE AND CAROL LANE, INDIVIDUALLY AND AS TRUSTEES OF THE LANE FAMILY TRUST; AND JOHN C. SERPA, INDIVIDUALLY AND AS TRUSTEE OF THE JOHN C. SERPA TRUST, Respondents

Appeal from a district court judgment in a deficiency judgment action. Second Judicial District Court, Washoe County; Jerome Polaha, Judge.

Lionel Sawyer & Collins and Leslie Bryan Hart and Courtney Miller O'Mara, Reno, for Appellant.

Lemons, Grundy & Eisenberg and Douglas R. Brown, Reno; Mir Saied Kashani, Los Angeles, California, for Respondents.

PICKERING, J. We concur Gibbons, C.J., Hardesty, J., Parraguirre, J., Douglas, J., Cherry, J., Saitta, J.

OPINION

Page 1290

BEFORE THE COURT EN BANC.

PICKERING, J.:

This case presents the question of whether the definition of " indebtedness" found in NRS 40.451 limits, through its interaction with NRS 40.459(1)(a) and NRS 40.459(1)(b), the amount a successor lienholder can recover in an action for a deficiency judgment to the amount of consideration such a lienholder paid to obtain its interest in the note and deed of trust. Specifically, we must determine the meaning of NRS 40.451's final sentence, " [s]uch amount constituting a lien is limited to the amount of consideration paid by the lienholder." Based on our review of NRS 40.451's text, context, and history, we hold that the clause simply ensures that a lender cannot recover in deficiency judgment for future advances secured but not paid at the time of default. And because the section therefore places no consideration-based limitation on this lender's recovery against the instant borrowers and guarantor, we reverse the district court's order to the contrary in this case and remand for further proceedings consistent with this opinion.

I.

Respondent borrowers, Gordon and Carol Lane, took out a three million dollar loan, individually and as trustees of the Lane Family Trust, secured by a piece of commercial real estate. Respondent John C. Serpa, individually and as trustee of the John C. Serpa Trust, executed a personal guaranty thereupon. The Lanes defaulted on their obligation, and Serpa failed to fulfill his guarantor duties. But before the original lender exercised its right to foreclose, the Federal Deposit Insurance Corporation was appointed its receiver and assigned the interest in the Lanes' loan to appellant First Financial Bank, N.A. (FFB), in exchange for $2,256,879.90 (or 75% of the then-due balance of principal and accrued interest on the loan, $3,009,166.66). FFB foreclosed and sold the property in question--having a fair market value of $2,300,000.00--to itself at auction for $1,890,000.00. FFB then brought a deficiency judgment and breach of guaranty action against respondents, and the district court entered final judgment in respondents' favor " under NRS 40.451 because the fair market value of the subject property [$2,300,000.00] exceeds the consideration [FFB] paid [the FDIC] to acquire a lien on the property [$2,256,879.90]." FFB appeals.

II.

NRS 40.451, the statute upon which the district court based its determination, delineates the categories of debt one seeking a deficiency judgment may collect, that is, an obligor's " indebtedness" :

[First Sentence:] As used in [the deficiency judgment statutes] " indebtedness" means the principal balance of the obligation secured by a mortgage or other lien on real property, together with all interest accrued and unpaid prior to the time of foreclosure sale, all costs and fees of such a sale, all advances made with respect to the property by the beneficiary, and all other amounts secured by the mortgage or other lien on the real property in favor of the person seeking the deficiency judgment. [Limitation:] Such amount constituting a lien is limited to the amount of the consideration paid by the lienholder.

Each item in the first sentence of NRS 40.451 represents a category of obligation that a mortgage or deed of trust can secure that, together, comprise the " indebtedness" enforceable by an action for a deficiency judgment following foreclosure. See NRS 40.455-40.459. Thus, category one is the unpaid principal balance of the original obligation; category two is interest accrued but unpaid on the first; category three subsumes the costs and fees associated with the foreclosure sale; and category four captures expenditures that the lender makes to protect the property and thus its security, such as payment of casualty insurance, needed ...


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