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Bank of America, N.A. v. SFR Investments Pool 1 LLC

United States District Court, D. Nevada

March 17, 2017

BANK OF AMERICA, N.A., Plaintiffs,
v.
SFR INVESTMENTS POOL 1 LLC, et al., Defendants.

          ORDER

         Presently before the court is plaintiff/counter-defendant Bank of America, N.A.'s motion for summary judgment. (ECF No. 53). Defendant/counter-claimant SFR Investments Pool 1, LLC (“SFR”) filed a response (ECF No. 62), as did defendant Mesa Verde Homeowners Association (the “HOA”) (ECF No. 64), to which the bank replied (ECF No. 67).

         Also before the court is the HOA's motion for summary judgment. (ECF No. 54). The bank filed a response (ECF No. 60), to which the HOA replied (ECF No. 65).

         Also before the court is SFR's motion for summary judgment. (ECF No. 55). The bank filed a response, (ECF No. 59), to which SFR replied (ECF No. 66).

         I. Facts

         The present case involves a dispute over real property located at 3912 Thomas Patrick Avenue, North Las Vegas, Nevada (the “property”). (ECF No. 4 at 3). Crystal Cole (the “borrower”) purchased the property on March 3, 2008. (ECF No. 4 at 3). The borrower financed the purchase with a Federal Housing Administration (“FHA”) insured loan in the amount of $185, 179.00 loan that was secured by a deed of trust dated, and recorded on, March 3, 2008. (ECF No. 4-1 at 11).

         On December 15, 2010, the HOA recorded a notice of delinquent assessment lien through its trustee, Alessi & Koenig (“A&K”). (ECF No. 4-5). The notice asserted that the borrower owed $990.00 to the HOA. (ECF No. 4-5 at 2).

         On April 20, 2011, the HOA recorded, through its trustee, a notice of default and election to sell to satisfy the delinquent assessment lien. (ECF No. 4-6). The notice asserted that the borrower owed $2, 140.00 in fees. (ECF No. 4-6 at 2). On the same day as it was recorded, A&K mailed the notice of default and election to sell to Mortgage Electronic Registration Services (“MERS”). (ECF No. 55-8). The bank received this notice on May 16, 2011. (ECF No. 55-9 at 4).

         On June 28, 2011, the deed of trust was assigned to BAC Home Loans Servicing, LP (“BAC”) FKA Countrywide Home Loans Servicing, LP, via an assignment of deed of trust. (ECF No. 4-4). The assignment was recorded on July 6, 2011. (ECF No. 4-4). The bank obtained interest in the deed of trust as successor in interest by merger to BAC. (ECF No. 4 at 4).[1]

         On July 29, 2013, A&K mailed a notice of trustee's sale (via certified mail, return receipt requested) to the borrower, the bank, and MERS. (ECF Nos. 55-11). On July 31, 2013, the HOA recorded the notice of trustee's sale through its agent. (ECF No. 4-7). The notice asserted that the borrower owed $6, 767.30 and that the trustee's sale would occur on August 28, 2013. (ECF No. 4-7 at 2).

         A&K held the trustee's sale on August 28, 2013, at which SFR purchased the property for $10, 100.00. (ECF No. 4-10 at 2). The foreclosure deed was recorded on September 9, 2013. (ECF No. 4-10).

         On April 27, 2015, the bank filed an amended complaint, asserting four claims against the HOA and SFR: (1) declaratory relief/quiet title; (2) wrongful foreclosure against the HOA; (3) breach of Nevada Revised Statute (“NRS”) 116.1113 against the HOA; and (4) injunctive relief against SFR. (ECF No. 4).

         The bank contends that the HOA's foreclosure sale did not extinguish the senior deed of trust because (1) the FHA had an interest in the deed and an extinguishment of the federal government's interest would be in violation of the Constitution, (2) the notices were insufficient under Nevada law, (3) the HOA wrongfully rejected the bank's tender of the super-priority amount, (4) the sale was commercially unreasonable, and (5) Nevada's statutory scheme providing superpriority liens to homeowners associations is violative of procedural due process under the Constitution. (ECF No. 4 at 7-9). The bank also maintains that the HOA violated NRS 116.1113 by falsely promising that its liens were subordinate to the senior deed of trust and thereafter failing to notify the bank that its security interest was at risk. (ECF No. 4 at 10-11).

         On July 2, 2015, SFR filed an answer and counter/cross-claim asserting two claims of relief against the bank and the borrower: (1) declaratory relief/quiet title; and (2) preliminary and permanent injunction. (ECF No. 19).

         II. Legal standard

         The Federal Rules of Civil Procedure allow summary judgment when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A principal purpose of summary judgment is “to isolate and dispose of factually unsupported claims . . . .” Celotex Corp. v. Catrett, 477 U.S. 317, 323- 24 (1986).

         For purposes of summary judgment, disputed factual issues should be construed in favor of the non-moving party. Lujan v. Nat'l Wildlife Fed., 497 U.S. 871, 888 (1990). However, to be entitled to a denial of summary judgment, the non-moving party must “set forth specific facts showing that there is a genuine issue for trial.” Id.

         In determining summary judgment, the court applies a burden-shifting analysis. “When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000). Moreover, “[i]n such a case, the moving party has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case.” Id.

         By contrast, when the non-moving party bears the burden of proving the claim or defense, the moving party can meet its burden in two ways: (1) by presenting evidence to negate an essential element of the non-moving party's case; or (2) by demonstrating that the non-moving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323-24. If the moving party fails to meet its initial burden, summary judgment must be denied and the court need not consider the non-moving party's evidence. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 159- 60 (1970).

         If the moving party satisfies its initial burden, the burden then shifts to the opposing party to establish that a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, the opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient that “the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).

         The Ninth Circuit has held that information contained in an inadmissible form may still be considered for summary judgment if the information itself would be admissible at trial. Fraser v. Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003) (citing Block v. City of Los Angeles, 253 F.3d 410, 418-19 (9th Cir. 2001) (“To survive summary judgment, a party does not necessarily have to produce evidence in a form that would be admissible at trial, as long as the party satisfies the requirements of Federal Rules of Civil Procedure 56.”)). . . . . . . . . . . . . . . .

         III. Discussion[2]

         In its motion, SFR moves for summary judgment on its cross/counterclaims for quiet title and preliminary and permanent injunctions, (ECF No. 55), whereas the bank moves for summary judgment on its claims for quiet title, wrongful foreclosure, breach of NRS 116.1113, and injunctive relief, (ECF No. 53).

         Under Nevada law, “[a]n action may be brought by any person against another who claims an estate or interest in real property, adverse to the person bringing the action for the purpose of determining such adverse claim.” Nev. Rev. Stat. § 40.010. “A plea to quiet title does not require any particular elements, but each party must plead and prove his or her own claim to the property in question and a plaintiff's right to relief therefore depends on superiority of title.” Chapman v. Deutsche Bank Nat'l Trust Co., 302 P.3d 1103, 1106 (Nev. 2013) (citations and internal quotation marks omitted). Therefore, for claimant to succeed on its quiet title action, it needs to show that its claim to the property is superior to all others. See Breliant v. Preferred Equities Corp., 918 P.2d 314, 318 (Nev. 1996) (“In a quiet title action, the burden of proof rests with the plaintiff to prove good title in himself.”).

         SFR asserts that summary judgment in its favor is proper because, inter alia, the foreclosure sale extinguished the bank's deed of trust pursuant to NRS 116.3116 and SFR Invs. Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408, 412-14 (Nev. 2014) (“SFR Investments”) and because the bank has not met the fraud, unfairness, or oppression requirement to set aside a foreclosure sale as outlined in Shadow Wood Homeowners Assoc. v. N.Y. Cmty. Bancorp., Inc., 366 P.3d 1105, 1112 (Nev. 2016) (“Shadow Wood”). (ECF No. 55). The HOA echoes some of SFR's arguments in its motion for summary judgment, asserting that summary judgment is appropriate as to SFR's quiet title action. (ECF No. 54).

         The bank contends that summary judgment in its favor is proper because, inter alia, (1) it tendered the superpriority portion, but the HOA wrongfully refused the tender; (2) the foreclosure sale was conducted contrary to federal law, (3) the foreclosure sale was commercially unreasonable, (4) the foreclosure sale is invalid because the notice scheme of NRS Chapter 116 is facially unconstitutional, and (5) SFR Investments should not be applied retroactively. (ECF No. 53).

         Notably, the Nevada Supreme Court has held that foreclosure of an HOA superpriority lien under Chapter 116 will extinguish all lower priority interests. See SFR Investments, 334 P.3d at 412-14. If this court finds a properly conducted foreclosure sale, only through equity will the bank prevail. However, “a court of equity acts with caution.” Hurley v. Kincaid, 285 U.S. 95, 104 n.3 (1932). Indeed, the court finds that exercising such caution is warranted in this case.

         1. Nev. Rev. Stat. § 116.3116

         NRS § 116.3116(1) gives an HOA a lien on its homeowners' residences for unpaid assessments and fines; moreover, NRS 116.3116(2) gives priority to that HOA lien over all other liens and encumbrances with limited exceptions-such as “[a] first security interest on the unit recorded before the date on which the assessment sought to be enforced became delinquent.” Nev. Rev. Stat. § 116.3116(2)(b). The statute then carves out a partial exception to subparagraph (2)(b)'s exception for first security interests. See Nev. Rev. Stat. § 116.3116(2). In SFR Investments, the Nevada Supreme Court provided the following explanation:

As to first deeds of trust, NRS 116.3116(2) thus splits an HOA lien into two pieces, a superpriority piece and a subpriority piece. The superpriority piece, consisting of the last nine months of unpaid HOA dues and maintenance and nuisance-abatement charges, is “prior to” a first deed of trust. The subpriority piece, consisting of all other HOA fees or assessments, is subordinate to a first deed of trust.

334 P.3d at 411 (Nev. 2014).

         NRS Chapter 116 permits an HOA to enforce its superpriority lien by nonjudicial foreclosure sale. Id. at 415. Thus, “NRS 116.3116(2) gives an HOA a true superpriority lien, proper foreclosure of which will extinguish a first deed of trust.” Id. at 419; see also Nev. Rev. Stat. § 116.31162(1) (providing that “the association may foreclose its lien by sale” upon compliance with the statutory notice and timing rules).

         2. FHA insurance

         The bank argues that the HOA lien statute cannot interfere with the federal mortgage insurance program or extinguish mortgage interests insured by the FHA. (ECF No. 53 at 6-12).

         The single-family mortgage insurance program allows FHA to insure private loans, expanding the availability of mortgages to low-income individuals wishing to purchase homes. See Sec'y of Hous. & Urban Dev. v. Sky Meadow Ass'n, 117 F.Supp.2d 970, 980-81 (C.D. Cal. 2000) (discussing program); Wash. & Sandhill Homeowners Ass'n v. Bank of Am., N.A., No. 2:13-cv-01845-GMN-GWF, 2014 WL 4798565, at *1 n.2 (D. Nev. Sept. 25, 2014) (same). If a borrower under this program defaults, the lender may foreclose on the property, convey title to HUD, and submit an ...


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