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Bank of New York Mellon v. The Springs At Centennial Ranch Homeowners Association

United States District Court, D. Nevada

March 28, 2018

The Bank of New York Mellon fka the Bank of New York, as Trustee for the Certificateholders of CWALT, Inc., Alternative Loan Trust 2005-47-CV, Mortgage Pass-through Certificates Series 2005-47CB, Plaintiff
The Springs at Centennial Ranch Homeowners Association, et al., Defendants


         The Bank of New York Mellon sues the Springs at Centennial Ranch Homeowners Association (HOA) for damages and a declaration that the Bank's deed of trust securing the mortgage on the home at 916 Malibu Sands Avenue in Las Vegas, Nevada, was not extinguished by the HOA's January 2013 non-judicial foreclosure sale to SFR Investments Pool 1, LLC.[1] The HOA moves to dismiss all claims against it. It argues that the Bank's wrongful-foreclosure and breach-of-NRS 116.113 claims are time barred because they were filed more than a year after the three-year statute of limitations ran. It contends that the Bank's quiet-title claim fails because the Bank holds only a lien, not title; failed to allege that it paid all debts and encumbrances; and did not join the property's prior owner, who is a necessary party. Finally, it argues that the Bank's declaratory-relief claim is redundant of its quiet-title claim; seeks to redress a past wrong, not a prospective one; and fails for lack of a justiciable controversy. Although I find that the wrongful-foreclosure and NRS 116.1113 claims are time-barred because they were not brought within three years of the sale, the HOA has not demonstrated a basis to dismiss the remaining claims.

         I. The HOA's Motion to Dismiss the Bank's Claims [ECF No. 15]

         District courts employ a two-step approach when evaluating a complaint's sufficiency on a Rule 12(b)(6) motion to dismiss. The court must first accept as true all well-pled factual allegations in the complaint, recognizing that legal conclusions are not entitled to the assumption of truth.[2] Then, the court must consider whether the well-pled factual allegations state a plausible claim for relief.[3] A claim is facially plausible when the complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct.[4] The district court may dismiss a claim as time barred if “the running of the statute of limitations is apparent on the face of the complaint.”[5]

         A. NRS 116.1113 and wrongful foreclosure

         The HOA first argues that the Bank's claims for wrongful foreclosure and breach of NRS 116.1113 are time barred. It contends that both claims are governed by NRS 11.190(3)(a), which imposes a three-year statute of limitations on actions “upon a liability created by statute, other than a penalty or forfeiture.”[6] Because the property was sold at foreclosure on January 16, 2013, and the deed was recorded days later on January 24, 2013, the HOA contends that the Bank's filing of this lawsuit in June 2017 was more than a year too late.

         A claim for wrongful foreclosure “challenges the authority behind the foreclosure, not the foreclosure act itself.”[7] NRS Chapter 116, which authorizes HOAs to enforce liens by non-judicial foreclosure, is the authority behind the sale at issue here. And the Bank alleges that the HOA violated NRS 116.31162 when conducting this sale.[8] The Bank's wrongful-foreclosure sale is thus an “action upon a liability created by statute, ” and it is time barred because it was not filed within three years of the foreclosure sale.[9]

         The same is true for the Bank's second cause of action, entitled “Breach of NRS 116.1113 against HOA.” NRS 116.1113 states that “[e]very contract or duty governed by [NRS Chapter 116] imposes an obligation of good faith in its performance or enforcement.”[10] In effect, this statute just makes it clear that Nevada's policy that “[a]n implied covenant of good faith and fair dealing is recognized in every contract under Nevada law”[11] applies to CC&Rs, too. For this claim, the Bank repackages each of the NRS 116.31162 breaches it alleges in its wrongful-foreclosure claim as breaches of the HOA's “duty of good faith” under NRS 116.1113.[12] Because the good-faith obligation in NRS 116.1113 is also a liability created by statute, this claim is similarly barred by the three-year statute of limitations.[13]

         I am unpersuaded by the Bank's argument that the statute could not have started running on these claims at the time of the foreclosure sale. The Bank contends that it didn't know it had suffered an injury then because the 2014 SFR decision, in which the Nevada Supreme Court first held that such foreclosure sales extinguish deeds of trust, had not yet been issued.[14] It cites a 2015 opinion from another judge in this district in Christiana Trust v. K&P Homes for the proposition that, “[a]t best, ” SFR was “decided as an issue of first impression whose resolution was not clearly foreshadowed.”[15]

         But this notion in Christiana Trust was disavowed by the Nevada Supreme Court when answering a certified question in the very same case:

We answer the federal district court's certified question in the affirmative. [The SFR decision] did not create new law or overrule existing precedent; rather, that decision declared what NRS 116.3116 has required since the statute's inception. Therefore, that decision necessarily applies retroactively.[16]

         Lenders were well aware of NRS 116.3116 long before SFR, [17] and the Bank of New York Mellon was no exception. The Bank's allegations in the complaint that it tendered a portion of This theory was expressly rejected by the Nevada Supreme Court in SFR Investments Pool 1 v. U.S. Bank, 334 P.3d 408, 418-19 (Nev. 2014), so it fails to provide a viable basis for the Bank's wrongful-foreclosure claim here. the overdue HOA assessments for this property to the HOA's agent in 2010[18] demonstrate that the Bank was long aware of NRS 116.3116 and its operation. So, based on the allegations in the complaint, once the foreclosure deed was recorded on January 24, 2013, the Bank had the facts to support its wrongful-foreclosure and NRS 116.1113 claims. Because the SFR decision did not change or redefine the Bank's rights or obligations under Nevada's non-judicial foreclosure scheme, it was the foreclosure sale or the recording of that deed just days later-not the SFR decision-that started the Bank's three-year clock running.[19] So I grant the motion to dismiss the Bank's second and third claims for relief as time barred.[20]

         B. Quiet title

         The HOA also argues that the Bank has not pled, and cannot plead, a quiet-title claim because (1) the interest it claims in the property is merely a lien, not a claim to title, (2) the Bank cannot allege that it paid all the debts and encumbrances owed on the property, and (3) the Bank failed to join the prior owner of the property, who is a “necessary and indispensable party” to this suit.[21] None of these arguments dictates dismissal.

         As the Nevada Supreme Court explained in Shadow Wood HOA v. New York Community Bancorp, Inc., NRS 40.010 “essentially codified” Nevada's historical recognition “that courts retain the power to grant equitable relief from a defective foreclosure sale when appropriate . . . .”[22] “So, a person who brings a quiet title action may, consistent with NRS Chapter 40 and [Nevada's] long-standing equitable jurisprudence, invoke the court's inherent equitable powers to resolve the competing claims to such title.”[23] NRS 40.010 states that “[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.”[24] Its plain language does not require the claimant to be a title holder. And although the bank in Shadow Wood was a title holder because it had foreclosed on the property under its deed of trust, the Nevada Supreme Court did not suggest that “the long-standing and broad inherent power of a court to sit in equity and quiet title, including setting aside a foreclosure sale if the circumstances support such action, ” is limited to claims by title holders.

         The HOA cites Breliant v. Preferred Equities Corp.[25] for the proposition that the plaintiff in a quiet-title action must “prove good title in himself.”[26] So does the Shadow Wood court, [27]but its citations to NRS 40.010 and language touting the “broad inherent power of a court to sit in equity and quiet title, including setting aside a foreclosure sale, ” suggest that the Nevada Supreme Court now recognizes that the challenger of a foreclosure sale need not claim an interest in title to maintain a quiet-title action. This impression is buttressed by the Shadow Wood court's quotation of a passage from a real-estate-finance-law treatise summarizing that, “[a]fter a defective power of sale foreclosure has been consummated, mortgagors and junior lienholders in virtually every state have an equitable action to set aside the sale.”[28] So, I am not persuaded that only a title holder may invoke the court's equitable power to set aside a foreclosure sale in Nevada.

         Nor am I convinced that the Bank's quiet-title claim must be dismissed because it has not alleged that it paid all debts and encumbrances owed on the property. NRS 40.010 contains no such requirement. And the HOA bases its argument on a 2012 decision from this district that relied on a California appellate court opinion that was ordered not published after review was denied.[29] Because the HOA has not persuaded me that this payment-of-debts requirement exists in Nevada law, I decline to dismiss the quiet-title claim on this basis.

         The HOA also has not demonstrated that this claim should be dismissed for failure to join a necessary and indispensable party. Rule 19 of the Federal Rules of Civil Procedure requires joinder of “[a] person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction” if, “in that person's absence, the court cannot accord complete relief among the existing parties, ” or if disposal of the action in his absence “may: (i) as a practical matter impair or impede the person's ability to protect the interest; or (ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.”[30] The Ninth Circuit has recognized that “[a] non-party is ‘indispensible' to an action if (1) the non-party is ‘necessary' under Rule 19(a); (2) the non-party cannot be joined; and (3) the nonparty's absence would mandate dismissal according to a weighing of the factors outlined in Rule 19(b).”[31] The HOA addresses these extensive factors in a mere three sentences, arguing that “[t]his Court cannot quiet title in favor of the Bank because the Bank has failed to name a necessary and indispensable party whose interests in the Property . . . would be affected”-the borrower/homeowner who lost this property in the HOA foreclosure.[32]

         This perfunctory argument is too undeveloped to merit dismissal. I assume from the HOA's statement that this claim would be “untenable here for the Bank's failure to name” the prior homeowner[33] that it seeks dismissal, not an order directing that the homeowner be joined. But this is just an assumption, because the HOA does not articulate what relief the failure to name this party compels here. Even if I were to find that the homeowner is a necessary party, the HOA has not explained why this former owner cannot be joined.[34] So, I decline to dismiss this or any claim based on the failure to join the prior owner as a party to this case. But, because voiding the foreclosure sale would bring the prior homeowner back into the picture, I order the Bank to either join the prior owner or show cause under FRCP 19(c) why joinder is not feasible.

         C. Declaratory relief

         Finally, the HOA offers three reasons to dismiss the Bank's declaratory-relief claim. It first contends that the claim is worthy of dismissal because it is “redundant” and duplicative of the quiet-title claim.[35] But, considering that both theories are jointly pled within the Bank's first cause of action, declaratory relief is more accurately described as the remedy sought for the quiet-title claim.[36] At this nascent stage of litigation, this overlap does not warrant dismissal.

         The HOA then argues that the declaratory-relief claim fails because the Bank is not seeking prospective relief, and no live controversy exists between it and the Bank. But the Bank is seeking prospective relief: it wants the court to void the foreclosure sale or declare that it retains its security interest in the property despite the HOA's foreclosure sale to SFR under NRS 116.3116.[37] That declaration would impact prospective rights, not just past actions.

         There is also a justiciable controversy between the Bank and the HOA. Part of the relief that the Bank is seeking is a declaration that the HOA made significant errors in the foreclosure process:

including, without limitation, the lack of sufficient notice, HOA's wrongful rejection of the tender, the sale of the property for a fraction of the loan balance or actual market value of the property, a foreclosure that was not calculated to promote an equitable sales prices [sic] for the property or to attract proper perspective [sic] purchasers, and a foreclosure sale that was designed and/or intended to result in maximum profit for HOA, its agent, and SFR at the sale without regard to the rights ...

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