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Nationstar Mortgage, LLC v. Saticoy Bay LLC Series 2227 Shadow Canyon

Supreme Court of Nevada

November 22, 2017

NATIONSTAR MORTGAGE, LLC, Appellant,
v.
SATICOY BAY LLC SERIES 2227 SHADOW CANYON, Respondent.

         Appeal from a district court summary judgment in a quiet title action. Eighth Judicial District Court, Clark County; Carolyn Ellsworth, Judge.

          Akerman LLP and Ariel E. Stern, Rex D. Garner, and Allison R. Schmidt, Las Vegas, for Appellant.

          Law Offices of Michael F. Bohn, Ltd., and Michael F. Bohn, Las Vegas, for Respondent.

          BEFORE HARDESTY, PARRAGUIRRE and STIGLICH, JJ.

          OPINION

          HARDESTY, J.

         In SFR Investments Pool 1, LLC v. U.S. Bank, NA, 130 Nev., Adv. Op. 75, 334 P.3d 408 (2014), this court held that under NRS Chapter 116, a homeowners' association (HOA) has a lien on a homeowner's home for unpaid monthly assessments, that the HOA's lien is split into superpriority and subpriority pieces, and that proper foreclosure of the superpriority piece of the lien extinguishes a first deed of trust. In so doing, we noted but did not consider whether such a foreclosure sale could be set aside if it were "commercially unreasonable." Id. at 418 n.6. Subsequently in Shadow Wood Homeowners Ass'n, Inc. v. New York Community Bancorp, Inc., 132 Nev., Adv. Op. 5, 366 P.3d 1105 (2016), we considered whether such a sale could be set aside based solely on inadequacy of price. Therein, we reiterated the rule from prior Nevada cases that inadequacy of price alone "is not enough to set aside a sale; there must also be a showing of fraud, unfairness, or oppression." Id. at 1112 (citing Long v. Towne, 98 Nev. 11, 639 P.2d 528 (1982)). Nonetheless, because Shadow Wood also cited the Restatement (Third) of Property: Mortgages § 8.3 (1997), which recognizes that a court is "[glenerally" justified in setting aside a foreclosure sale when the sales price is less than 20 percent of the property's fair market value, 132 Nev., Adv. Op. 5, 366 P.3d at 1112-13 & n.3, appellant Nationstar Mortgage argues that an HOA foreclosure sale can be set aside based on commercial unreasonableness or based solely on low sales price. We therefore take this opportunity to provide further clarification on these issues.

         As to the "commercial reasonableness" standard, which derives from Article 9 of the Uniform Commercial Code (U.C.C.), we hold that it has no applicability in the context of an HOA foreclosure involving the sale of real property. As to the Restatements 20-percent standard, we clarify that Shadow Wood did not overturn this court's longstanding rule that '"inadequacy of price, however gross, is not in itself a sufficient ground for setting aside a trustee's sale'" absent additional "'proof of some element of fraud, unfairness, or oppression as accounts for and brings about the inadequacy of price, '" 132 Nev., Adv. Op. 5, 366 P.3d at 1111 (quoting Golden v. Tomiyasu, 79 Nev. 503, 514, 387 P.2d 989, 995 (1963)). That does not mean, however, that sales price is wholly irrelevant. In this respect, we adhere to the observation in Golden that where the inadequacy of the price is great, a court may grant relief based on slight evidence of fraud, unfairness, or oppression. 79 Nev. at 514-15, 387 P.2d at 994-95 (discussing Oiler v. Sonoma Cty. Land Title Co., 90 P.2d 194 (Cal.Ct.App. 1955)). Because Nationstar's identified irregularities do not establish that fraud, unfairness, or oppression affected the sale, we affirm the district court's summary judgment in favor of respondent Saticoy Bay.

         FACTS AND PROCEDURAL HISTORY

         The subject property is located in a neighborhood governed by an HOA. The previous homeowner had obtained a loan to purchase the property, which was secured by a deed of trust, and which was eventually assigned to Nationstar. When the previous homeowner became delinquent on her monthly assessments, the HOA's agent recorded a notice of delinquent assessment lien, a notice of default, and a notice of sale, and then proceeded to sell the property at a foreclosure sale to Saticoy Bay for $35, 000. Thereafter, Saticoy Bay instituted the underlying quiet title action, naming Nationstar as a defendant and seeking a declaration that the sale extinguished Nationstar's deed of trust such that Saticoy Bay held unencumbered title to the property.

         Saticoy Bay and Nationstar filed competing motions for summary judgment. As relevant to this appeal, Nationstar argued "the sales price of the property at the HOA auction was commercially unreasonable as a matter of law." In support of this argument, Nationstar provided an appraisal valuing the property at $335, 000 as of the date of the HOA's foreclosure sale, and it cited to the Restatement (Third) of Property: Mortgages § 8.3 (1997) for the proposition that a court is generally justified in setting aside a foreclosure sale when the sales price is less than 20 percent of the property's fair market value. In opposition, Saticoy Bay argued that commercial reasonableness is not a relevant inquiry in an HOA foreclosure sale of real property and that, instead, such a sale can only be set aside if it is affected by fraud, unfairness, or oppression. According to Saticoy Bay, because Nationstar had not produced any evidence showing fraud, unfairness, or oppression affected the sale, Saticoy Bay was entitled to summary judgment. Ultimately, the district court agreed with Saticoy Bay and granted summary judgment in its favor. This appeal followed.

         DISCUSSION

         We review de novo a district court's decision to grant summary judgment. Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005). "Summary judgment is appropriate . . . when the pleadings and other evidence on file demonstrate that no genuine issue as to any material I fact remains and that the moving party is entitled to a judgment as a matter of law." Id. (quotation and alteration omitted). "The substantive law controls which factual disputes are material and will preclude summary judgment; other factual disputes are irrelevant." Id. at 731, 121 P.3d at 1031.

         We first consider whether U.C.C. Article 9's commercial reasonableness standard applies when considering an HOA's foreclosure sale of real property. Concluding that the commercial reasonableness standard is inapplicable, we next consider whether a low sales price, in and of itself, may warrant invalidating an HOA foreclosure sale. After reaffirming our longstanding rule that "inadequacy of price, however gross, is not in itself a sufficient ground for setting aside a [foreclosure] sale, " Golden, 79 Nev. at 514, 387 P.2d at 995, we next consider whether Nationstar produced evidence showing that the sale was affected by "fraud, unfairness, or oppression" that would justify setting aside the sale, id. Because we agree with the district court that Nationstar's proffered evidence does not show fraud, unfairness, or oppression affected the sale, we affirm the district court's summary judgment.[1]

         U.C.C. Article 9's commercial reasonableness standard is inapplicable in the context of an HOA foreclosure sale of real property

         Before considering Nationstar's argument regarding commercial reasonableness, some context is necessary. Article 9 of the U.C.C. is entitled "Secured Transactions." Generally speaking, and with various exceptions, Article 9 provides the framework by which a person may obtain money from a creditor in exchange for granting a security interest in personal property (i.e., collateral). See NRS 104.9109(1); U.C.C. § 9-109(a) (Am. Law Inst. & Unif. Law Comm'n (2009); see generally William H. Lawrence, William H. Henning & R. Wilson Freyermuth, Understanding Secured Transactions §§ 1.01-1.03 (4th ed. 2007) (providing an overview of Article 9's purpose and scope). Article 9 also provides the framework by which the creditor, upon the debtor's default, may repossess and dispose of the personal property to satisfy the outstanding debt. See NRS 104.9601-.9628; U.C.C. §§ 9-601 to 9-628. Because a wide array of personal property may be used as collateral, Article 9 does not provide detailed requirements by which a creditor must dispose of the collateral, but instead provides generally that the creditor's disposition of the collateral must be done in a "commercially reasonable" manner. See NRS 104.9610(1)-(2); U.C.C. § 9-610(a)-(b); see also NRS 104.9627(2) (defining a "commercially reasonable" disposition with reference to the "recognized market" and "in conformity with reasonable commercial practices" for the particular collateral at issue); U.C.C. § 9-627(b) (same); Lawrence, Henning & Freyermuth, supra § 18.02 (recognizing that Article 9's procedures governing disposition are "deliberately flexible" because "[tlhe drafters hoped that Article 9 dispositions would produce higher prices than those typically obtained in real estate foreclosures").

         This court has considered on several occasions whether an Article 9 disposition of collateral was commercially reasonable. In so doing, we have observed that "every aspect of the disposition, including the method, manner, time, place, and terms, must be commercially reasonable, " Levers v. Rio King Land & Inv., Co,, 93 Nev. 95, 98, 560 P.2d 917, 920 (1977) (quoting the former version of NRS 104, 9610(1)), and that "[t]he conditions of a commercially reasonable sale should reflect a calculated effort to promote a sales price that is equitable to both the debtor and the secured creditor, "Dennison v. Allen Grp. Leasing Corp., 110 Nev. 181, 186, 871 P, 2d 288, 291 (1994). We have also observed that because "a secured creditor is generally in the best position to influence the circumstances of sale, it is reasonable that the creditor has an enhanced responsibility to promote fairness, " Savage Constr., Inc. v. Challenge-Cook Bros,, Inc., 102 Nev; 34, 37, 714 P.2d 573, 575 (1986). In other words, in the context of Article 9 sales, it is arguable that this court has at least implicitly recognized two things: (1) the secured creditor has an affirmative obligation to obtain the highest sales price possible; and (2) if the sale is challenged, the secured creditor has the burden of establishing commercial reasonableness. See Dennison, 110 Nev. at 186, 871 P.2d at 291; Savage Constr., 102 Nev. at 37, 714 P.2d at 575; Levers, 93 Nev. at 98, 560 P.2d at 920; accord Chittenden Tr. Co. v. Maryanski, 415 A.2d 206, 209 (Vt. 1980) ("[T]he majority rule appears to be that the secured party has the burden of pleading and proving that any given disposition of collateral was commercially reasonable . . . .").

         Relying on our aforementioned case law, Nationstar contends that an HOA foreclosure sale of real property should be subject to Article 9's commercial reasonableness standard, such that the HOA (or the purchaser at the HOA sale) has the burden of establishing that the HOA took all steps possible to obtain the highest sales price it could. We disagree.[2] In contrast to Article 9's "deliberately flexible" requirements regarding the method, manner, time, place, and terms of a sale of personal property collateral, see Lawrence, Henning & Freyermuth, supra § 18.02, NRS Chapter 116 provides "elaborate" requirements that an HOA must follow in order to foreclose on the real property securing its lien, see SFR Invs., 130 Nev., Adv. Op. 75, 334 P.3d at 416. For example, before an HOA can foreclose, it must mail, record, and post various notices at specific times and containing specific information. See generally NRS 116.31162-.31164 (2013).[3] In other words, because the relevant statutory scheme curtails an HOA's ability to dictate the method, manner, time, place, and terms of its foreclosure sale, an HOA has little autonomy in taking extra-statutory efforts to increase the winning bid at the sale. Thus, HOA foreclosure sales of real property are ill suited for evaluation under Article 9's commercial reasonableness standard.

         The Uniform Common Interest Ownership Act (UCIOA), upon which NRS Chapter 116 is modeled, see SFR Invs., 130 Nev., Adv. Op. 75, 334 P.3d at 411, supports our conclusion that HOA real property foreclosure sales are not to be evaluated under Article 9's commercial reasonableness standard. In particular, the UCIOA recognizes that there are technically three different types of common interest communities and that in one of those types, the unit owner's interest in his or her property is characterized as a personal property interest. See 1982 UCIOA § 3-116(j). Specifically, and although not necessary to examine the distinctions between them for purposes of this appeal, the three different types of common interest communities are: (1) a "condominium or planned community, "[4] (2) "a cooperative whose unit owners' interests in the units are real estate, " and (3) "a cooperative whose unit owners' interests in the units are personal property" Id. (emphases added). Tellingly, the UCIOA prompts a state adopting its provisions to choose and insert the following methods of sale for each of the three common interest community types:

(1) In a condominium or planned community, the association's lien must be foreclosed in like manner as a mortgage on real estate [or by power of sale under ...

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