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U.S. Bank, N.A. v. Southern Highlands Community Association

United States District Court, D. Nevada

March 29, 2019

U.S. BANK, N.A., Plaintiff,
v.
SOUTHERN HIGHLANDS COMMUNITY ASSOCIATION, et al., Defendants.

          ORDER

          Kent J. Dawson United States District Judge.

         Before the Court are three motions for summary judgment. The first is a joint motion filed by Cross Defendants Bank of America and Nationstar Mortgage, LLC and Plaintiff/Counter Defendant U.S. Bank N.A. (#109).[1] Defendants Southern Highlands Community Association (HOA) and SFR Investments Pool 1, LLC have responded (##117, 118), and the banks replied (#119).

         Next is a motion for summary judgment filed by Defendant Southern Highlands Community Association (“HOA”). (#110). The banks responded (#115), and the HOA replied (#120).

         Last is a motion for summary judgment filed by Defendant SFR Investments Pool 1, LLC. (#111). The banks responded (#116), and SFR replied (#121).

         This is a quiet title action arising out of the non-judicial foreclosure of 10702 La Crescenta Ct. in Las Vegas, Nevada. U.S. Bank seeks a declaration that the HOA foreclosure did not extinguish its deed of trust under two theories. First, it claims that the HOA's foreclosure under NRS § 116 is invalid because the statute is unconstitutional. The crux of this argument is that § 107.090's notice requirements-as incorporated-do not adequately warn subordinate lienholders that the HOA foreclosure threatened to extinguish their deeds of trust. Alternatively, the bank argues that the Court should set aside the HOA sale because it was fraudulent or unfair and because the sale price was grossly inadequate. SFR and the HOA moved separately for summary judgment. Like U.S. Bank, SFR seeks to quiet title in the property and requests a declaration that it purchased the property free and clear of the bank's deed of trust. The HOA seeks summary judgment on U.S. Bank's wrongful foreclosure and breach of NRS § 116 claims. The HOA argues that it complied with the provisions of § 116 and did not wrongfully foreclose on the property. Both SFR and the HOA argue that § 116 is constitutional and that the HOA sale was not commercially unreasonable. The Court agrees and therefore grants Southern Highlands Community Association's and SFR Investments Pool's respective motions. (##110, 111). Consequently, the Court denies U.S. Bank's motion for summary judgment (#109).

         I. Background

         In March of 2007, non-party Jacqueline Hagerman purchased a home at 10702 Crescenta Ct. in Las Vegas, Nevada. Countrywide Home Loans financed the original sale for $444, 000 and secured a deed of trust against the property. (#109, Exh. 1). That deed of trust listed Hagerman as the borrower, Countrywide as the lender, Recontrust Company as trustee, and Mortgage Electronic Registration Systems, Inc. (MERS) as beneficiary under the security instrument. Id. Over the life of the loan the deed of trust went through multiple assignments. Ultimately, it was assigned to U.S. Bank in April of 2013. (#109, Exh. 3). Shortly thereafter, Hagerman defaulted on her HOA assessments and mortgage obligations. (#1, at 4). At that time, the unpaid principal balance on the loan totaled $400, 720.52. Id.

         Hagerman's default prompted U.S. Bank and the HOA to initiate their individual collections processes to recover the delinquencies. The HOA acted first. On July 22, 2010, it recorded a Notice of Delinquent Assessment lien on the property through its appointed trustee Alessi and Koenig. (#109, Exh. 4). That notice identified the HOA's outstanding balance at $892.86, which included fees and late charges. Id. Nearly four months later, Alessi recorded a Notice of Default and Election to Sell to satisfy the delinquent lien amount. (#109, Exh. 5). In that notice, the HOA claimed a delinquency of $1, 879.77 and warned that failure to pay that balance could result in the homeowner losing her home. Id. Then in August of 2012, Alessi recorded a Notice of Trustee's Sale, which was scheduled for September 5, 2012. None of Alessi's recorded notices specified the superpriority lien balance or alerted the bank of the delinquent balance necessary to preserve its lien. There is no evidence that U.S. Bank attempted to tender payment of the outstanding balance or otherwise satisfy the lien. SFR purchased the property for $8, 200 at a public auction on September 5, 2012. (#109, Exh. 7).

         U.S. Bank then brought this action. At bottom, the bank seeks to quiet title in the property. (#1, at 6). To do so, the bank seeks a declaration that NRS § 116 violated its procedural due process rights, which invalidates the HOA's foreclosure. It also brought a wrongful foreclosure claim and breach of NRS § 116 claim against the HOA. In response, SFR asserted its own quiet-title claim against U.S. Bank, Nationstar, and former-owner Jacqueline Hagerman.[2](#13). In addition, SFR sought to enjoin U.S. Bank from asserting an interest in the property and claimed slander of title against the bank. Id. at 16-17.[3] The Court then stayed the case following the Ninth Circuit's decision in Bourne Valley Court Trust v. Wells Fargo Bank, N.A., 832 F.3d 1154 (9th Cir. 2016). (#75). The Court lifted the stay in October of 2018 and set the dispositive-motion deadline. (#79). Discovery has since 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 avoid unnecessary trials by disposing of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); Northwest Motorcycle Ass'n v. U.S. Dept. of Agriculture, 18 F.3d 1468, 1471 (9th Cir. 1994). 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. Kaiser Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986). Yet, to survive summary judgment, the nonmoving party must show more than “some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586.

         III. Analysis

         U.S. Bank seeks for summary judgment on its quiet title claim arguing that (1) the HOA foreclosed under an unconstitutional statute thereby preserving the bank's interest in the property and (2) that even if NRS § 116 is constitutional, the inherent unfairness of the sale coupled with the property's sale price justify setting aside the HOA sale.

         SFR also seeks summary judgment on its own quiet-title claim and argues that U.S. Bank lacks standing because it has not provided evidence of the assignments of the deed of trust sufficient to prove the bank's chain of title. It continues that even if the bank has standing, NRS § 116 is both facially constitutional and constitutional as applied to U.S. Bank. SFR contends that the bank received adequate notice to apprise it of the risk to the bank's property interest and to allow the bank to contest the sale. Finally, SFR argues that U.S. Bank has not demonstrated the necessary fraud, oppression, or unfairness that would justify equitably setting aside the sale.

         The HOA seeks summary judgment on U.S. Bank's wrongful foreclosure and breach of NRS § 116 claims. Like SFR, the HOA argues that § 116 is constitutional and that the bank lacks standing to challenge the statute because it received actual notice of the HOA-foreclosure sale. It further argues that the foreclosure notices provided adequate notice to the bank that its interest was at risk of extinguishment. Relatedly, the HOA argues that the mortgage protection clause in its CC&Rs did not prevent it from foreclosing on its entire lien balance. It continues that, despite the protections in the CC&Rs, it was not a breach of § 116 to foreclose on its lien.

         A. U.S. Bank's Motion for Summary Judgment

         The Court turns first to U.S. Bank motion because it presents two threshold questions necessary to quite title. Namely, is NRS § 116 facially constitutional and was it constitutionally applied to U.S. Bank? And second, was this HOA sale so tainted by ...


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