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Capital One, National Association v. SFR Investments Pool 1, LLC

United States District Court, D. Nevada

April 12, 2019

CAPITAL ONE, NATIONAL ASSOCIATION, a national banking association, Plaintiff,
SFR INVESTMENTS POOL 1, LLC, et al., Defendants.


          Kent J. Dawson United States District Judge.

         Before the Court are three motions for summary judgment and one motion to dismiss. Defendant Southern Highlands Community Association (“HOA”) has filed a motion for summary judgment (#102) to which plaintiff Capital One responded (#112), and the HOA replied (#115).

         Next is a motion for summary judgment filed by Capital One (#104) to which defendant SFR Investments Pool 1, LLC responded (#113), and Capital One replied (#117).

         Finally, SFR Investments Pool 1, LLC moved for summary judgment (#105) to which Capital One responded (#114), and SFR replied (#118).

         SFR has alternatively moved to dismiss Capital One's complaint under Rule 12(b)(7). (##109/111).[1] Capital One responded (#116), and SFR replied (#119).

         This is an action to quiet title following an HOA foreclosure and trustee sale of a home at 5004 Benezette Court in Las Vegas, Nevada. Capital One and SFR both claim a superior interest in the property. Capital One seeks to quiet title on behalf of the Federal Home Loan Mortgage Corporation (Freddie Mac). The bank claims that at the time of the HOA foreclosure it was the beneficiary-servicer under an agreement Freddie Mac. SFR Investments Pool 1, LLC also seeks to quiet title. SFR purchased the property at a trustee sale. That purchase, it claims, extinguished Capital One's property interest under NRS § 116, Nevada's non-judicial foreclosure scheme. It disputes that Freddie Mac holds any interest under the deed of trust and that the foreclosure was constitutional and commercially reasonable. Southern Highlands Community Association, the HOA, initiated the non-judicial foreclosure, and its agent facilitated the sale. The HOA does not assert an interest in the property.

         Capital One argues that the HOA foreclosure and subsequent sale of the property did not extinguish Freddie Mac's deed of trust because: (1) the Federal Foreclosure Bar of 12 U.S.C. § 4617(j)(3) preempted NRS § 116 and preserved Freddie Mac's interest; (2) the HOA foreclosed under an unconstitutional statute (NRS § 116); and (3) the foreclosure sale was commercially unreasonable. Capital One is correct that Freddie Mac indeed held a property interest at the time the HOA foreclosed and that the Federal Foreclosure Bar protected that interest from extinguishment. As a result, Freddie Mac's deed of trust survived the foreclosure. The Court therefore grants Capital One's motion for summary judgment and finds that SFR's interest in the property is subject to that of Freddie Mac.

         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 created the Federal Housing Finance Agency (FHFA). It vested the FHFA with authority 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 protections, including protection from non-consensual foreclosure. This has come to be known as the “Federal Foreclosure Bar.” The bar exempted Fannie and Freddie properties from “levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency.” See id. § 4617(j)(3). The FHFA has not consented to these foreclosures and has vowed not to consent in the future. Press Release, Fed. Housing Fin. Agency, Statement on HOA Super-Priority Lien Foreclosures (Apr. 21, 2015), At bottom, the Federal Foreclosure Bar preserves Freddie Mac's or Fannie Mae's property interests in the face of a non-judicial foreclosure.

         B. The Foreclosure and Sale of 5004 Benezette Court

         In August of 2004, Eilat Benaron acquired title to 5004 Benezette Court, a piece of real property in Las Vegas, Nevada. The property was part of the Southern Highlands Community Association and was subject to the association's Covenants, Conditions, and Restrictions (CC&Rs). (#105, Exh. A-1). Two years later, Benaron obtained a $226, 300 mortgage on the property. That mortgage was secured by a deed of trust that listed Benaron as the borrower, Chevy Chase Bank as the lender, and Mortgage Electronic Registration Systems (MERS)[2] as nominee for the lender's successors and assigns. (#63, Exh. 1 at 2-3). The deed of trust was recorded on September 22, 2006. Id. at 2. Capital One claims that Freddie Mac purchased the loan and obtained an interest in the property in September of 2007. (#104, Exh. D at 3). It also claims that Freddie Mac has not transferred or otherwise relinquished its ownership in the property. Id. at 6. Capital One serviced the loan on behalf of Freddie Mac from September 27, 2007 until July 16, 2018, [3] when Rushmore Management Services assumed servicing duties on Freddie Mac's behalf. Id. at 4.

         At some point, Benaron defaulted on his mortgage payments and HOA assessments. That default prompted a foreclosure action by the HOA. On April 20, 2011, the HOA-through its agent, Alessi and Koenig, LLC-recorded a Notice of Delinquent Assessment. (#105, Exh. A-5). Benaron failed to satisfy the delinquency. Alessi then recorded a Notice of Default and Election to Sell. (#105, Exh. A-6). Benaron again failed to satisfy the delinquency, which led Alessi to record a Notice of Sale and hold a trustee sale. (#105, Exh. A-8). SFR purchased the property at the trustee sale with a winning bid of $8, 500. (#105, Exh. A-12). At no point did Capital One make a payment to the HOA to satisfy the delinquency, nor did the bank attend the auction or bid on the property. (#105 at 5).

         In July 2015, Capital One sued SFR to quiet title in the property. (#1). It brought two causes of action: quiet title and fraudulent transfer. Id at 3. Each cause of action sought the same remedy: a declaration that its deed of trust survived the HOA sale and still encumbers the property. If so, SFR's interest in the property would, at minimum, be subject to Freddie Mac's interest. Shortly thereafter, Capital One amended its complaint to include the Southern Highlands HOA. (#6). The bank did not alter its original causes of action or modify its requested relief. SFR answered the complaint and asserted its own quiet title action against Capital One and Benaron. (#14 at 11). Benaron has not filed an answer to SFR's claims or participated in the litigation in any meaningful way, which led the Clerk of the Court to enter default against him. (#106). In early 2017, the parties filed their first motions for summary judgment. (##59, 63). Before the Court could rule on those motions, it stayed the case pending the final determinations of several cases including the appeal of the Ninth Circuit's decision in Bourne Valley Court Tr. v. Wells Fargo Bank, N.A., ...

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