United States District Court, D. Nevada
THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATEHOLDERS CWABS, INC. ASSET-BACKED CERTIFICATES, SERIES 2006-6 Plaintiff,
STAR HILL HOMEOWNERS ASSOCIATION; SBW INVESTMENT, LLC; NEVADA ASSOCIATION SERVICES, INC.; and SFR INVESTMENT POOL 1, LLC, Defendants. SFR INVESTMENTS POOL 1, LLC, Counter/Cross Claimant,
THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF CWABS, INC., 2006-6, RICHARD A. PEREZ, SR. an individual, and ROSEMARIE PEREZ, an individual, Counter/Cross Defendants.
RICHARD F. BOULWARE, II UNITED STATES DISTRICT JUDGE
the Court is Counter / Cross Claimant SFR Investment Pool 1,
LLC's Motion to Certify a Question of Law to Nevada's
Supreme Court. ECF No. 21. For the reasons stated below, the
Motion is granted. SFR seeks certification of the following
NRS § 116.31168(1)'s incorporation of NRS §
107.090 requires homeowner's association to provide
notices of default to banks even when a bank does not request
case arises out of the foreclosure sale by Star Hills
Homeowners Association (“Association”) of its
lien for delinquent assessments against the real property
commonly known as 5020 Piney Summit Ave, Las Vegas, Nevada
89141 (the “Property”). See Complaint
(“Compl.”) ECF 1 at p.3, ¶ 8; see
also SFR's Answer, Counterclaim, Cross-claim
(“SFRACC”), ECF 20 at p.9, ¶1. The complaint
alleges Star Hill Homeowners Association's sale did not
extinguish the deed of trust because BACK Home Loans
Servicing, LP's (“BAC”) tender satisfied the
super-priority lien and NRS chapter 116 violates the
Fourteenth Amendment's Due Process clause. Id.
¶¶ 37-44, 48. The complaint asserts both a facial
and an as-applied constitutional due process challenge to the
super-priority lien foreclosure statutes. SFR filed a
counterclaim for quiet title and injunctive relief. ECF No.
20 at 9-17.
Parties' pleadings, including BNY Melon's Complaint,
ECF No. 1, and SFR's Answer, Counterclaim and
Cross-Claim, ECF No. 20, set forth the following facts:
1991, Nevada adopted Uniform Common Interest Ownership Act as
NRS 116, including NRS 116.3116(2). In 1993, Nevada amended
NRS 116, repealing a portion of NRS 116.31168, and enacting
NRS 116.31163 and 116.31165. In October of 2004, the
Association recorded its declaration of Covenants,
Conditions, and Restrictions (CC&Rs) in the Official
Records of the Clark County Recorder as Instrument Number
January 31, 2006, a Grant, Bargain, and Sale Deed was
recorded transferring the Property to Richard A. Perez, Sr.
and Rosemarie Perez. On the same day, a Deed of Trust naming
Countrywide Home Loans, Inc. as lender, and Mortgage
Electronic Registration Systems, Inc. (“MERS”) as
beneficiary, and Recontrust Company
(“Recontrust”) as trustee, was recorded. On
February 5, 2010, the Perezes became delinquent on their
Association dues and the Association, through its agent
Nevada Association Services, Inc. (“NAS”),
recorded a Notice of Delinquent Assessments. On May 5, 2010,
the Association, through NAS, recorded a Notice of Default
and Election to Sell. On January 19, 2011, the Association,
through NAS, recorded a Notice of Sale.
August 26, 2011, an assignment was recorded by Bank of
America N.A. (“BANA”), stating that MERS
transferred its interest in the Deed of Trust to BNY Mellon.
On August 26, 2011, Recontrust recorded a Substitution of
Trustee, identifying BNY Mellon as the new trustee.
Recontrust also recorded a Notice of Default and Election to
Sell under the Deed of Trust. On December 30, 2011,
Recontrust recorded a Certificate State of Nevada Foreclosure
Mediation Program allowing the Beneficiary of the Deed of
Trust to proceed with foreclosure. Recontrust also recorded a
Notice of Trustee's Sale.
15, 2012, the Association, through NAS, recorded a second
Notice of Sale. On September 15, 2012, the Association's
foreclosure sale was held, and SBW Investment, Inc.
(“SBW”) purchased the property. On September 20,
2012, the Association, through NAS, recorded a Foreclosure
Deed vesting title in SBW. The Foreclosure Deed stated that
the Association foreclosure sale complied with “all
requirements of law including, but not limited to, the
elapsing of 90 days, mailing of copies of Notice of
Delinquent Assessments and Notice of default and the posting
and publication of the Notice of Sale.” On April 5,
2013, SBW recorded a Grant, Bargain, Sale Deed transferring
title to SFR.
October 1, 2015, Nevada amended NRS 116 to explicitly require
homeowners' associations to provide parties with recorded
interests with notice of default and notice of sale even when
notice has not been requested.
November 4, 2016, BNY Mellon filed its Complaint, naming the
Association, SBW, NAS, and SFR as defendants. BNY Mellon
requests, inter alia, a declaration from the Court
that the Association Foreclosure Sale did not extinguish the
Deed of Trust (and its associated priority interest) and that
the Deed of Trust maintains its priority interest encumbering
the Property. Alternatively, BNY Mellon seeks a declaration
that the Association Foreclosure Sale is void. BNY Mellon
alleged that the foreclosure procedures were unconstitutional
in that they denied due process.
January 3, 2017, SFR filed its answer and brought
counter-claims against BNY Mellon and the Perezes asking,
inter alia, for declaratory relief and quiet title.
SFR alleges that BNY Mellon had actual notice and received
the Association's Notice of Default and Notice of Sale.
Therefore, SFR requests a declaration that the Deed of Trust
was extinguished by the sale pursuant to the Nevada Supreme
Court decision in SFR Investments Pool 1, LLC v. U.S.
Bank, N.A., 334 P.3d 408, 419 (Nev. 2014), and SFR has
title free and clear of the deed of trust.
August 12, the Ninth Circuit held NRS chapter 116's
"opt-in" notice scheme violates the Fourteenth
Amendment's due process clause because it allows a lender
to be stripped of its deed of trust without requiring actual
notice of the intent to foreclose. Bourne Valley Court
Tr. v. Wells Fargo Bank, N.A., 832 F.3d 1154, 1157-58
(9th Cir. 2016), r'hng denied (9th Cir. Nov. 4,
2016). The Court in Bourne Valley, in interpreting
the then-applicable notice provision in NRS 116.31163, held
that Nevada law did not mandate actual notice to mortgage
lenders whose rights are subordinate to a homeowner's
association super priority lien. See id. at 1159.
Importantly, the Court did not and could not rely upon any
controlling state law as to the requirements of notice under
state law as to NRS 116.31163. Relying upon its own analysis
of Nevada's statutory foreclosure statutes, the Court
found that although NRS 116.31168(1) incorporated NRS
107.090, which mandated actual notice to subordinate lien
holders, the notice provision in NRS 116.31163(2), requiring
notice only to those who “notified the association, 30
days before recordation of the notice of default, of the
security interest, ” controlled, and because full
incorporation of the NRS 107.090 would “render
superfluous” the notice provision of NRS 116.31163(2),
the statute could not be read to require the notice relevant
to the constitutional challenge.
Nevada Supreme Court, on January 26, 2017, issued its opinion
in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo
Home Mortgage, a Div. of Wells Fargo Bank, N.A., 388
P.3d 970 (Nev. 2017). In the opinion, the Nevada Supreme
Court disagreed with the Bourne Valley Court on the
issue of whether due process was implicated, holding that due
process was not implicated in an association non-judicial
foreclosure sale for lack of state action. Id.at
974, n.5. Because the Nevada Supreme Court concluded due
process was not implicated, it stated that it “need not
determine whether NRS 116.3116 et seq. incorporates the
notice requirements set forth in NRS 107.090.”
to Rule 5 of the Nevada Rules of Appellate Procedure
("Rule 5"), a United States District Court may
certify a question of law to the Nevada Supreme Court
"upon the court's own motion or upon the motion of
any party to the cause." Nev. R. App. P. 5(a)-(b). Under
Rule 5, the Nevada Supreme Court has the power to answer such
a question that “may be determinative of the cause then
pending in the certifying court and . . . [where] it appears
to the certifying court there is no controlling precedent in
the decisions of the Supreme Court of this state." Nev.
R. App. P. 5(a). Rule 5 also provides that a certification
order must specifically address each of six requirements:
(1) The questions of law to be answered;
(2) A statement of all facts relevant to the questions
(3) The nature of the controversy in which the questions
(4) A designation of the party or parties who will be the
appellant(s) and the party or parties who will be the
respondent(s) in the Supreme Court;
(5) The names and addresses of counsel for the appellant and
(6) Any other matters that the certifying court deems
relevant to a determination of the questions certified.
Nev. R. App. P. 5(c).
Court finds that certification to the Nevada Supreme Court is
warranted in this case because the pending claims and
counterclaims may be resolved, in part, by a determination of
whether NRS 116.31163-116.31168 and, by incorporation, NRS
107.090 required associations to provide notice to the
recorded beneficiary of a deed of trust, which is subordinate
to the super- priority portion of an association lien for
assessments under NRS 116.3116(2), and what notice must be
provided. See SFR, 334 P.3d at 419. While the Ninth
Circuit has construed the statute and determined that it is
unconstitutional as “opt-in” only, this Court is
cognizant that it did so in the absence of controlling
precedent or construction from the Nevada Supreme Court. And,
where there is no controlling precedent from the state, and
the interpretation of state law is controlling, then the
federal court's determination is controlling. See
Huddleston v. Dwyer, 322 U.S. 232, 236 (1944). However,
if the state court disapproves of the interpretation given by
the federal court, then the federal courts must follow the
interpretation by the state court. See id.; see
also Owen v. United States, 713 F.2d 1461, 1464 (9th
Cir.1983) (a federal court's construction of state law is
“only binding in the absence of any subsequent
indication from the [state appellate] courts that our
interpretation was incorrect.”). As recognized by the
Ninth Circuit, “[i]t is solely within the province of
the state courts to authoritatively construe state
legislation.” Cal. Teachers Ass'n v. State Bd.
Of Educ., 271 F.3d 1141, 1146 (9th Cir. 2001). This is
why questions of state law should be resolved in the first
instance by the state's highest court.
Huddleston, 322 U.S. at 237. Because the Nevada
Supreme Court declined to reach the issue of notice in
Saticoy Bay, there is no controlling precedent from
that Court. A decision by the Nevada Supreme Court on the
instant issue would provide this Court with guidance as to
how to address the issue of notice, including actual notice,
and how to apply Bourne Valley in this case.
Additionally, disputes over the scope of discovery may be
impacted by the answer to the question.
the relevant facts are set forth above, the Court addresses
whether the issue “may be determinative of the
cause” as well as the remaining five requirements.
May Be ...