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RH Kids, LLC v. MTC Financial

United States District Court, D. Nevada

March 18, 2019

RH KIDS, LLC, Plaintiff,
MTC FINANCIAL, et al., Defendants.


          Kent J. Dawson, United States District Judge.

         Before the Court are competing motions for summary judgment filed by defendants MTC Financial, Countrywide Home Loans, Bank of America, Inc., and Mortgage Electronic Registration Systems, Inc. (MERS)[1] (#80) and plaintiff RH Kids, LLC (#82).[2] Bank of America moved first. RH Kids responded to oppose Bank of America's motion and itself moved for summary judgment. (#82). In one responsive pleading, Bank of America opposed RH Kids's motion and replied in support of its own summary judgment motion. (#85).

         This real estate foreclosure case asks the Court to determine who holds superior title in a residential property located at 2704 Coventry Green Avenue, Henderson, Nevada 89074. To do so, the Court confronts two questions. First, did the so-called Federal Foreclosure Bar of 12 U.S.C. § 4617(j)(3) prohibit the HOA's otherwise valid non-judicial foreclosure of the Coventry Green property? And second, did Bank of America's attempt to ascertain the superpriority portion of the lien-amounting to nine months of delinquent assessments-preserve its interest in the property despite that foreclosure? The Court answers both questions in the affirmative and therefore grants Bank of America's motion for summary judgment, denies RH Kids's motion, and enters judgment in favor of defendants.

         I. Factual and Procedural Background

         A. The Housing and Economic Recovery Act and Federal Foreclosure Bar

         Congress passed the Housing and Economic Recovery Act in response to the 2008 recession and its ensuing foreclosure crisis. The purpose of the act was to protect the fragile housing market by addressing the critical undercapitalization of the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae). It sought to ensure that the two companies “operated in a safe and sound manner . . . consistent with the public interest.” 12 U.S.C. § 4513(a)(1)(B). To that end, the act subjected both Fannie Mae and Freddie Mac to increased oversight and government control.

         The act created the Federal Housing Finance Agency and authorized it to place both Fannie Mae and Freddie Mac under the Agency's conservatorship, which it did in 2008. As conservator, the FHFA was responsible for supervising and winding up Fannie's and Freddie's affairs. 12 U.S.C. § 4617(a)(2). As conservatees, Freddie Mac and Fannie Mae assets received certain federal protection, including protection from non-consensual foreclosure. This has come to be known as the “Federal Foreclosure Bar.” See id § 4617(j)(3) (“No property of the Agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency, nor shall any involuntary lien attach to the property of the Agency”).

         B. The Foreclosure and Sale of 2704 Coventry Green Avenue

         Non-parties Luis and Mirna Alfaro purchased the Coventry Green property in August of 2007. (#80, at 3). At the time of the purchase, the property was part of the Cobblestone Homeowners' Association and was subject to the Association's Covenants, Conditions, and Restrictions (CC&Rs). (#10, at 2-3). The deed of trust listed the Alfaros as the borrowers, Bank of America as the lender, and MERS[3] as the beneficiary nominee. (#80, Exh. A). That deed of trust was recorded August 30, 2007. Id Bank of America claims that Freddie Mac purchased the loan and obtained a security interest in the property the very next week. (#80, Exh. B, at 2-3). It also claims that Freddie Mac has not transferred or otherwise relinquished its ownership in the property. Id at 3. In May of 2011, MERS recorded an assignment of its deed of trust to BAC Home Loans Servicing. (#80, Exh. C). Defendant Bank of America NA. is successor by merger to BAC Home Loans Servicing. (#80, at 3).

         At some point, the Alfaros defaulted on their mortgage payments and HOA assessments. That default prompted two separate foreclosure proceedings. The HOA struck first. In January of 2011, the HOA recorded a lien for delinquent assessments against the property through its agent Nevada Association Services. (#80, Exh. D). After the Alfaros failed to satisfy the outstanding lien, the HOA recorded a Notice of Default and Election to Sell again through its agent Nevada Association Services. (#80, at 5). In March of 2012, the Coventry Green Trust purchased the property at a public auction. Id Coventry Green later conveyed its interest in the property to Diakonos Holdings, LLC-the original plaintiff in this case. (#80, at 6). Diakonos conveyed the property by quitclaim deed to RH Kids-the current plaintiff in this case. (#80, Exh. J).

         After the HOA foreclosure, servicer Bank of America attempted to satisfy the outstanding superpriority-lien balance. Bank of America contacted Nevada Association Services by letter and requested a payoff invoice that would satisfy the superpriority portion of the HOA lien. (#80, Exh. G-1). Nevada Association Services did not respond. (#80, at 5). Shortly thereafter, the bank filed a Notice of Trustee's Sale pursuant to a Deed of Trust to sell the property at auction in May of 2012. (#10, at 3).

         Before that sale, RH Kids filed this action in state court to halt foreclosure proceedings. Id In addition to its request to enjoin the sale, RH Kids sought to quiet title in the Coventry Green property. Id The state court enjoined the bank's foreclosure sale pending a determination of the rights in the property. Id at 4. Bank of America then removed to this Court, which subsequently stayed the case pending the Ninth Circuit's decisions in two cases similar to this one.[4] Following the Ninth Circuit's issuance of those opinions in August of 2017, the Court lifted the stay. (#74). Discovery has closed, and the parties have filed their respective motions for summary judgment to which the Court now turns.

         II. Legal Standard

         The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). It is available only where the absence of material fact allows the Court to rule as a matter of law. Fed.R.Civ.P. 56(a); Celotex, 477 U.S. at 322. Rule 56 outlines a burden shifting approach to summary judgment. First, the moving party must demonstrate the absence of a genuine issue of material fact. The burden then shifts to the nonmoving party to produce specific evidence of a genuine factual dispute for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A genuine issue of fact exists where the evidence could allow “a reasonable jury [to] return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court views the evidence and draws all available inferences in the light most favorable to the nonmoving party. ...

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