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Ditech Financal LLC v. Resources Group LLC

United States District Court, D. Nevada

June 19, 2019

Ditech Financial LLC; Federal National Mortgage Association, Plaintiffs
Resources Group, LLC, as Trustee of the Reber Dr. Trust, Defendant


          Jennifer A. Dorsey, U.S. District Judge

         Nevada law holds that a properly conducted nonjudicial foreclosure sale by a homeowners' association to enforce a superpriority lien extinguishes the first deed of trust. But when that deed of trust belongs to government-sponsored lender Fannie Mae, and the foreclosure sale occurs while Fannie Mae is under the conservatorship of the Federal Housing Finance Agency and without the agency's consent, federal law shields that security interest from extinguishment.

         Fannie Mae and its loan servicer Ditech Financial LLC bring this quiet-title action to determine the effect of a 2015 nonjudicial foreclosure sale on the deed of trust securing the mortgage on a home. Because they have shown that the Federal Foreclosure Bar prevented that sale from extinguishing the deed of trust, I grant summary judgment in their favor on their quiet-title claim that is based on that theory. But because their other quiet-title theory-that Nevada's statutory foreclosure scheme was unconstitutional-fails as a matter of law, I grant the foreclosure-purchaser defendant's motion to dismiss that claim.


         The Federal National Mortgage Association, better known as Fannie Mae, who has been under the conservatorship of the Federal Housing Finance Agency (FHFA) since 2008, purchased the mortgage on the home located at 254 Reber Drive in Mesquite, Nevada, in August of 2006, along with the deed of trust that was securing it.[1] The deed of trust has been assigned several times to various servicing agents as Fannie Mae's nominees.[2] The home is located in the Grapevine Villas common-interest community and subject to the Grapevine Villas Homeowners' Association's declaration of covenants, conditions, and restrictions, which requires the owners of homes within this development to pay assessments.[3]

         The Nevada Legislature gave homeowners associations (HOAs) a superpriorty lien against residential property for certain delinquent assessments and established in Chapter 116 of the Nevada Revised Statutes a non-judicial foreclosure procedure for HOAs to enforce that lien.[4]When the owners of the Reber Drive home fell behind on assessments, the Grapevine Villas HOA sold it to the Reber Drive Trust in such a nonjudicial foreclosure sale on March 18, 2015.[5]

         As the Nevada Supreme Court held in SFR Investments Pool 1 v. U.S. Bank in 2014, because NRS 116.3116(2) gives an HOA “a true superpriority lien, proper foreclosure of” that lien under the non-judicial foreclosure process created by NRS Chapters 107 and 116 “will extinguish a first deed of trust.”[6] But the Federal Foreclosure Bar in 12 U.S.C. § 4617(j)(3) creates an exception to that rule.[7] This safeguard is contained in the Housing and Economic Recovery Act (HERA, codified at 12 U.S.C. § 4511 et seq.), which went into effect in 2008, established the FHFA, and placed Fannie Mae under that agency's conservatorship.[8] Under HERA's Federal Foreclosure Bar, when Fannie Mae is the beneficiary of the deed of trust at the time of the foreclosure sale and Fannie Mae is under the conservatorship of the FHFA, the deed of trust is not extinguished and instead survives the sale unless the agency affirmatively relinquishes that interest.[9]

         Fannie Mae and its loan servicer Ditech Financial LLC filed this action against the foreclosure-sale buyer, asserting quiet-title claims based on two independent theories: (1) the Federal Foreclosure Bar prevented the foreclosure sale from extinguishing the deed of trust, and (2) the sale did not extinguish the deed of trust because Nevada's HOA foreclosure scheme was unconstitutional.[10] These claims are the type of quiet-title claim recognized by the Nevada Supreme Court in Shadow Wood Homeowners Association, Inc. v. New York Community Bancorp-actions “seek[ing] to quiet title by invoking the court's inherent equitable jurisdiction to settle title disputes.”[11] The resolution of such a claim is part of “[t]he 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” it.[12]

         Fannie Mae and Ditech move for summary judgment, arguing that the Federal Foreclosure Bar prevented the deed of trust from extinguishment.[13] The Trust opposes the motion[14] and also moves to dismiss this action.[15] I find that Fannie Mae and Ditech have established that they are entitled to quiet-title relief based on the Federal Foreclosure Bar, so I grant summary judgment in their favor on that claim. But because their theory that Nevada's HOA foreclosure scheme was unconstitutional before its amendment in October 2015 has been squarely rejected as a matter of law, I grant the Trust's motion to dismiss that remaining claim and close this case.


         A. Fannie Mae and Ditech's Motion for Summary Judgment [ECF No. 36]

         1. Legal standard

         Summary judgment is appropriate when the pleadings and admissible evidence “show there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”[16] When considering summary judgment, the court views all facts and draws all inferences in the light most favorable to the nonmoving party.[17] If reasonable minds could differ on material facts, summary judgment is inappropriate because its purpose is to avoid unnecessary trials when the facts are undisputed, and the case must then proceed to the trier of fact.[18] If the moving party satisfies Rule 56 by demonstrating the absence of any genuine issue of material fact, the burden shifts to the party resisting summary judgment to “set forth specific facts showing that there is a genuine issue for trial.”[19] “To defeat summary judgment, the nonmoving party must produce evidence of a genuine dispute of material fact that could satisfy its burden at trial.”[20]

         2. Fannie Mae is entitled to summary judgment on its Federal Foreclosure Bar-based quiet-title claim.

         Fannie Mae has demonstrated through its motion and supporting materials that it is entitled to summary judgment on its first quiet-title claim based on the Federal Foreclosure Bar. In Berezovsky v. Moniz, the Ninth Circuit held that “the Federal Foreclosure Bar supersedes the Nevada superpriority lien provision, ”[21] preventing a non-judicial foreclosure sale under NRS Chapter 116 from extinguishing a Fannie Mae deed of trust while this lender is under agency conservatorship. So, the question for me to decide on summary judgment is whether Fannie Mae has shown that its interest in this property was protected from the legal effect of NRS 116.3116 by the Federal Foreclosure Bar.

         The record supports that conclusion, leaving no genuine issue of material fact. There is no dispute that Fannie Mae was under the agency's conservatorship in 2015. The Trust does dispute, however, whether Fannie Mae has established that the deed of trust belonged to it at the time of the foreclosure sale. Fannie Mae offers the affidavit of its Assistant Vice President Graham Babin and corroborating documents to show that Fannie Mae had a valid and enforceable deed of trust on the property at the time of the sale.[22] The Trust contends that Babin has not shown he is “competent to authenticate” the computer records on which his declaration that Fannie Mae owned the deed of trust is based, [23] but I find that Babin's declaration sufficiently establishes his familiarity with Fannie Mae's recordkeeping system and the authenticity of the printouts to lay the foundation required by Federal Rule of Evidence 902(11). And it establishes-with no contradictory evidence from the Trust-that the security interest on this property belonged to Fannie Mae at the time of the 2015 foreclosure sale, as it does today.[24]Although the deed of trust is held in the name of Ditech (formerly known as Green Tree Servicing LLC), Fannie Mae's documents (including its Single-Family Seller/Servicer Guide[25]) also show that Ditech is merely its agent for loan-servicing purposes and that the beneficial interest belongs to Fannie Mae.[26]

         There is also no evidence in the record that the agency consented to the extinguishment of Fannie Mae's security interest.[27] The Trust argues that the court should imply consent because the agency has failed to develop and adopt a process for third parties to seek its consent.[28] But nothing in the statute supports the notion that the FHFA should be stripped of its consent right if it fails to timely adopt a procedure for obtaining that consent. To the contrary, “[t]he Federal Foreclosure Bar cloaks the FHFA's ‘property with Congressional protection unless or until the FHFA affirmatively relinquishes it, '” and “‘the Federal Foreclosure Bar does not require the FHFA to actively resist foreclosure.'”[29] Based on this feature of the Federal Foreclosure Bar, the Nevada Supreme Court has expressly rejected the argument that the agency's or Fannie Mae's inaction can be construed as consent.[30]

         The Trust's remaining arguments against summary judgment on the Federal Foreclosure Bar theory fail as a matter of law. Its assertions that its purported status as a bona fide or innocent purchaser changes the analysis and that Nevada's statutes required Fannie Mae's interest to appear in the property records, are grounded in the notion that Fannie Mae should- and could-have easily recorded its interest.[31] But the Ninth Circuit has held that Fannie Mae has no such obligation to keep its Federal Foreclosure Bar defense. The deed of trust is a recorded lien interest, and “HERA does not require that potential buyers received notice of FHFA's or [Fannie Mae's] interests in properties whose sales are prevented by the Federal Foreclosure Bar.”[32] “Nevada law . . . recognizes that, in an agency relationship” like the one Fannie Mae has demonstrated here, “a note owner remains a secured creditor with a property interest in the collateral even if the recorded deed of trust names only the owner's agent.”[33] So Fannie Mae's name need not be on a recorded deed of trust for that interest to be “valid and enforceable under Nevada law.”[34]

         The Trust's contention that the sale is “presumed valid” against Fannie Mae by operation of NRS 116.31166[35] fails under the Nevada Supreme Court's holding in Shadow Wood HOA v. New York Community Bancorp. It is true that NRS 116.31166 states that certain “recitals in a deed . . . are conclusive proof of the matters recited.”[36] But in Shadow Wood, the Court explained that “the recitals made conclusive by operation of NRS 116.31166 implicate compliance only with the statutory prerequisites to foreclosure”[37] like timely mailing, posting, and recording of notices of sale. Nothing in NRS 116.31166 addresses the Federal Foreclosure Bar; if it did, it would likely be preempted just as NRS 116.3116 is.

         The remainder of the Trust's arguments require me to ignore or pervert the holding of Berezovsky, which I decline to do. I conclude that Berezovsky provides the applicable legal principles for Fannie Mae's Federal Foreclosure Bar theory, that I am bound by those principles, and that Fannie Mae has shown through unrefuted evidence that it is entitled to summary judgment on its quiet-title claim based on this theory. So, I grant summary judgment in favor of Fannie Mae and Ditech on their Federal Foreclosure Bar claim, and declare that 12 U.S.C. § 4617(j)(3) prevented the 2015 foreclosure sale from extinguishing the first deed of trust.

         B. The Trust's Motion to ...

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