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PennyMac Loan Services, LLC v. Townhouse Greens Association, Inc.

United States District Court, D. Nevada

July 10, 2017




         I. SUMMARY

         This case concerns a homeowner association's (“HOA”) foreclosure of property (“the Property”) within its development pursuant to Nevada Revised Statutes Chapter 116. Before the Court are two motions filed by Defendant Gayle A. Kern, Ltd. dba Kern & Associates, Ltd. (“Kern”): (1) Motion to Dismiss Pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 12(h)(3), and NRS § 38.310 et seq. (“Motion”) (ECF No. 40) and (2) Motion for Sanctions Pursuant to FRCP 11 (“Motion for Sanctions”) (ECF No. 44). The Court has reviewed Plaintiff PennyMac Loan Services, LLC's (“PennyMac”) respective responses (ECF Nos. 42, 45) and Kern's replies (ECF Nos. 43, 48). The Court held a hearing on Kern's motions on June 6, 2017 (“Hearing”). (ECF Nos. 52, 53.)

         For the reasons discussed below, the Court grants Kern's Motion to Dismiss and denies Kern's Motion for Sanctions.


         A. Statutory Framework

         In 1991, the Nevada legislature created the HOA lien statute found in Nevada Revised Statute Chapter 116. SFR Investments Pool 1 v. U.S. Bank, 334 P.3d 408, 410 (Nev. 2014). The statute allows an HOA to place a lien on a residential unit within its common-interest community for any assessment levied against that residential unit.[1] See NRS § 116.3116(1) (2011).[2] Once the HOA places a lien on the residential unit, the statute makes the HOA's lien prior to all other liens and encumbrances on the unit, except for: (a) liens and encumbrances recorded before the recordation of the declaration that creates the HOA; (b) a first security interest on the unit recorded before the date where the assessment sought by the HOA became delinquent; and (c) liens for real estate taxes and other governmental assessments against the unit. See NRS § 116.3116(2). However, the statute creates a partial exception-an exception to the exception-regarding the priority of a first security interest, e.g., a mortgage, recorded before the date of an assessment delinquency:

The [HOA] lien is also prior to all security interests described in paragraph (b) to the extent of any [maintenance and nuisance-abatement] charges incurred by the association on a unit pursuant to NRS 116.310312 and to the extent of the assessments for common expenses [i.e., HOA dues] based on the periodic budget adopted by the association pursuant to NRS 116.3115 which would have become due in the absence of acceleration during the 9 months immediately preceding institution of an action to enforce the lien, unless federal regulations adopted by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association require a shorter period of priority for the lien…This subsection does not affect the priority of mechanics' or materialmen's liens, or the priority of liens for other assessments made by the association.

SFR Investments, 334 P.3d at 410-11 (citing NRS §116.3116(2)) (emphasis added in original). In other words, this statutory provision allows the HOA to split its lien into two pieces: a superpriority piece and a subpriority piece. The superpriority piece of the HOA's lien consists of the last nine months of unpaid HOA dues as well as maintenance and nuisance-abatement charges. Id. at 411. Pursuant to the statute, this superpriority piece is prior to a first deed of trust.[3]

         The HOA foreclosure process, NRS §§ 116.31162 - 116.31168, requires an HOA to first notify the owner of the residential unit of the delinquent assessments. NRS § 116.31162(1)(a). If the owner does not pay within 30 days of this notice of delinquent assessment, then the HOA may record a notice of default and election to sell. NRS § 116.31162(1)(b). The homeowner must then be allowed 90 days to pay off the amount of the lien, including costs, fees and expenses incident to enforcement. NRS § 116.31162(1)(c). If the lien is not paid off in this time, then the HOA may proceed with the sale.

         A security interest holder is entitled to notice only if it has notified the HOA, before the mailing of the notice of sale, of the existence of the security interest. NRS § 116.311635(1)(b)(2). Specifically, the HOA is required to provide not only the homeowner with notice of default and election to sell, but it must also notify “[e]ach person who has requested notice pursuant to NRS 107.090 or 116.31168(1)” and “[a]ny holder of a recorded security interest encumbering the unit's owner's interest who has notified the association, 30 days before the recordation of the notice of default, of the existence of the security interest.” NRS §§ 116.31163(1) - (2). If a holder of a recorded security interest encumbering the residential unit owner's interest has notified the HOA more than 30 days before the notice of default is recorded, the association “or other person conducting the sale” must mail by first-class mail a copy of the notice of default and election to sell within 10 days of the notice being recorded. NRS § 116.31163(2). Absent a holder of a recorded security interest's compliance with these “opt-in” notice requirements, the HOA may proceed with a non-judicial foreclosure sale in the event that the homeowner has still failed to remedy the delinquent assessments.

         B. Relevant Facts

         On August 8, 2016, PennyMac initiated this lawsuit against Townhouse Greens Association, Inc. (“Townhouse”), Thunder Properties, Inc. (“Thunder”), and Kern. (ECF No. 1.) The following facts are taken from the Complaint.

         Around December 23, 1998, Maria E. Golding and Rosalyn Bracamontes-Acosta obtained a loan from U.S. Financial Mortgage Corp. for $78, 379 (“the Loan”), secured by a deed of trust (“DOT”) encumbering the Property which is located in the HOA. The DOT was eventually assigned to PennyMac, although it is unclear when this occurred.

         On October 22, 2012, Townhouse recorded a notice of delinquent assessment lien in the amount of $2, 766.[4] On February 19, 2013, Townhouse recorded a notice of default and election to sell to satisfy the delinquent assessment lien. The notice stated that the total amount due to Townhouse was $6, 143.75 of which $3, 593.75 was subject to foreclosure. The notice also indicated that the total amount included late charges, advances, attorney's fees and costs. On July 1, 2013, Townhouse recorded a notice of HOA sale, which was scheduled for August 8. The notice also stated that the amount due to Townhouse was $8, 588.40, plus late charges, interest, any subsequent assessments, fee charges and expense.

         On April 9, 2013, Bank of America, N.A. (“BANA”), the servicer of the Loan, requested a ledger from Townhouse in order to identify the superpriority amount owed to Townhouse. Townhouse refused. As a result, BANA and its counsel attempted to calculate the superpriority amount-the sum of nine months of common assessments- which they determined was $1, 476. Around May 28, 2013, BANA remitted payment of this amount to Townhouse in an attempt to satisfy the superpriority lien amount, but Townhouse refused to accept BANA's tender.

         At the foreclosure sale held on August 8, 2013, Townhouse sold the Property to Thunder for a sale price of $8, 751.

         Kern was the law firm acting on behalf of Townhouse in attempting to collect the delinquent assessments owed to Townhouse and ...

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