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Kielty v. Federal Home Loan Mortgage Corp.

United States District Court, D. Nevada

May 24, 2017

JOHN R. KIELTY, Plaintiff,
v.
FEDERAL HOME LOAN MORTGAGE CORP. et al., Defendants.

          ORDER

          ROBERT C. JONES United States District Judge

         This case arises out of a condominium unit owners' association foreclosure sale and the attempts of the holders of a first deed of trust to foreclose against the same unit thereafter. Pending before the Court are three motions for summary judgment and a motion to reconsider.

         I. FACTS AND PROCEDURAL HISTORY

         In 2004, Joel B. Edralin purchased real property at 2181 Hussium St., Unit 108, Las Vegas, Nevada, 89108 (“the Property”), giving a $145, 400 promissory note (“the Note”) and deed of trust (“the DOT”) to Charter Funding (“Charter”). (See Compl. ¶¶ 2, 6, 13-14, ECF No. 1, at 10). A declaration of covenants, conditions, and restrictions (“the CC&R”) was recorded by Counterdefendant Rancho Lake Condominiums Unit-Owners Association (“the CUOA”) before the DOT. (See Id. ¶¶ 9-10). Edralin failed to pay unit assessments under the CC&R, and the CUOA recorded a notice of assessment lien on December 20, 2011, a notice of default and election to sell on February 13, 2012, and a notice of foreclosure sale on May 20, 2013, selling the Property to John R. Kielty at auction on June 14, 2013 for an amount not specified in the Complaint. (See Id. ¶¶ 18-24).

         In the meantime, Edralin had also defaulted on the Note. (Id. ¶ 33). On or about December 2, 2011, Mortgage Electronic Registration Systems, Inc. recorded an assignment of its interest in the DOT to Bank of America, N.A. (“BOA”). (Id. ¶ 34). Another assignment was recorded on March 20, 2013, transferring BOA's interest to Nationstar Mortgage LLC (“Nationstar”). (Id. ¶ 35). On or about July 26, 2014 (after the CUOA sale), another assignment was recorded transferring Nationstar's interest to Federal Home Loan Mortgage Corp. (“Freddie Mac”). (Id. ¶ 37). On or about July 31, 2014, American Trustee Servicing Solutions, LLC (“ATSS”) recorded a notice of default against the Property based on Edralin's default on the Note, purporting to act on behalf of Nationstar, although Nationstar had transferred its interest to Freddie Mac. (Id. ¶¶ 40-41).

         Kielty sued Freddie Mac, Nationstar, ATSS, and Edralin in state court to quiet title to the Property in his favor and enjoin any foreclosure based on the DOT, which Kielty argues was extinguished by the CUOA sale. Freddie Mac removed. Freddie Mac and Nationstar jointly answered and pleaded counterclaims for quiet title against Kielty, wrongful foreclosure against the CUOA, and declaratory and injunctive relief. Kielty answered the Counterclaim. The Court granted the Federal Housing Finance Agency's (“FHFA”) motion to intervene as a Defendant. The CUOA answered the Counterclaim. Neither ATSS nor Edralin have appeared. Kielty moved for offensive summary judgment on his claims, Freddie Mac and Nationstar moved for offensive summary judgment on their counterclaims, and the CUOA moved for defensive summary judgment against those counterclaims. The Court ruled:

The CUOA sale of June 14, 2013 was not preempted by 12 U.S.C. § 4617(j)(3), and the CUOA did not act in bad faith under NRS 116.1113. The Court grants summary judgment to Plaintiff and Counterdefendant and denies it to Defendants on these points. The Court also grants summary judgment to Plaintiff and Counterdefendant and denies it to Defendants as to Defendants' counterclaim that Defendants' predecessor-in-interest did not receive constitutionally sufficient notice of the CUOA sale. As to Plaintiff's claim that Defendants' predecessor-in-interest received sufficient notice of the CUOA sale and as to whether the CUOA sale may be equitably avoided or the deed of trust equitably revived due to a grossly inadequate sales price and fraud, unfairness, or oppression, those issues must be tried.

(Order, 11:3-12, ECF No. 67). Notably, the Court ruled that the foreclosure under Chapter 116 did not itself implicate the Due Process Clause of the Fourteenth Amendment, because there had been no state action.

         Defendants have asked the Court to reconsider and grant them summary judgment on the due process issue in light of the Court of Appeals' intervening contrary ruling in Bourne Valley Court Tr. v. Wells Fargo Bank, N.A., 832 F.3d 1154 (9th Cir. 2016) (ruling that Chapter 116's opt-in notice scheme is facially unconstitutional under the Due Process Clause of the Fourteenth Amendment). Defendants have separately moved for summary judgment on the issues of tender, commercial unreasonableness, oppression, and the retroactivity of SFR Investments Pool I v. U.S. Bank, 334 P.3d 408 (Nev. 2014). Plaintiff has also moved for summary judgment.

         II. DISCUSSION

         A. Due Process

         The Court will reconsider the grant of offensive summary judgment to Plaintiff under the Due Process Clause because of Bourne Valley and will not grant summary judgment to either side on the issue at this time. Plaintiff has adduced evidence that Nationstar received a copy of the notice of sale via certified mail on May 21, 2013, after it obtained the Note and DOT and before the sale. (See Pl.'s Mot. Summ. J. Ex. 11, ECF No. 85-11, at 8 (stamped receipt)). This is some evidence of sufficient notice, but it is not enough to eliminate all material questions of fact as to the notice issue. The fact of a stamped receipt for some piece of mail does not prove what the piece of mail was. The Court will leave this issue to a jury. That is, it would leave the issue to a jury if the present case could not be summarily adjudicated on other grounds. Because it can be, see infra, the Court declines to rule on the issue at this time.

         B. Commercial Reasonableness and Oppression Under Levers and Shadow Wood, Respectively

         As it has done in other cases where a property is sold at auction for a small fraction of an outstanding loan (here 15%), the Court will leave these issues to a jury. See, e.g., U.S. Bank v. Countryside Homeowners Ass'n, No. 2:15-cv-1463, 2016 WL 3638112, at *6 (D. Nev. July 7, 2016) (Jones, J.). That is, it would leave the issues to a jury if the present case could not be summarily ...


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