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Federal National Mortgage Association v. Warm Springs Reserve Owners Association

United States District Court, D. Nevada

January 3, 2020

Federal National Mortgage Association, Plaintiff
Warm Springs Reserve Owners Association, et al., Defendants ALL RELATED CLAIMS AND PARTIES


          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 a first deed of trust. But when that deed of trust belongs to government-sponsored enterprise Federal National Mortgage Association (better known as “Fannie Mae”), and the foreclosure sale occurs while Fannie Mae is under the conservatorship of the Federal Housing Finance Agency (FHFA) and without that agency's consent, federal law shields that security interest from extinguishment. That shield is known as the Federal Foreclosure Bar.

         Fannie Mae brings this action to determine the effect of a 2012 nonjudicial foreclosure sale on the deed of trust securing the mortgage on a home.[1] Because Fannie Mae has shown that the Federal Foreclosure Bar prevented that sale from extinguishing the deed of trust, I grant summary judgment in its favor and close this case.


         Fannie Mae, which has been under the conservatorship of the FHFA since 2008, [2]purchased the mortgage on the home located at 346 Pinnacle Court in Henderson, Nevada, in 2002, along with the deed of trust that secures it.[3] The deed of trust has been assigned to various nominees acting as Fannie Mae's loan-servicing agents.[4] The home is located in the Warm Springs Reserve common-interest community and subject to its homeowners' association's covenants, conditions, and restrictions (CC&Rs), which require the owners of property within this planned development to pay assessments.[5]

         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 nonjudicial foreclosure procedure for HOAs to enforce that lien.[6]When the owner of this Pinnacle Court home fell behind on his assessments, the Warm Springs Reserve Owners Association (“the HOA”), through its foreclosure agent Alessi & Koenig, sold the property at a nonjudicial foreclosure sale on July 18, 2012, to the Ferrell Street Trust.[7] That sale recorded on August 3, 2012.[8]

         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.”[9] But the Federal Foreclosure Bar in 12 U.S.C. § 4617(j)(3) creates an exception to that rule.[10] 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.[11]HERA established the FHFA and placed Fannie Mae under that agency's conservatorship.[12]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 relinquished that interest.[13]

         Fannie Mae filed this action against the HOA, its foreclosure agent Alessi & Koenig, [14]and foreclosure-sale purchaser the Ferrell Street Trust on December 7, 2016-about four years and four months after the foreclosure sale recorded.[15] Fannie Mae pleads quiet-title claims under three theories, [16] asserting that the Federal Foreclosure Bar or the tender of the full superpriority portion of the HOA's lien by Fannie Mae's loan servicer prevented the foreclosure sale from extinguishing the deed of trust and, alternatively, that Nevada's HOA lien-foreclosure scheme was unconstitutional as the Ninth Circuit held in Bourne Valley Court Trust v. Wells Fargo.[17]Fannie Mae also pleads alternative claims for breach of NRS § 116.1113 and wrongful foreclosure that are conditioned on the failure of its quiet-title claims, [18] and a claim for injunctive relief during the pendency of this case.[19] Purchaser Ferrell Street Trust counterclaims for a determination that it bought the property free and clear of the deed of trust.[20] I find that these competing quiet-title claims are all the type 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.”[21] 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.[22]

         Discovery has closed[23] and Fannie Mae moves for summary judgment, arguing that the Federal Foreclosure Bar and its loan servicer's pre-foreclosure tender of the full superpriority portion of the HOA's lien saved its deed of trust on this property from extinguishment.[24] The HOA and the Trust oppose that motion[25] and countermove for summary judgment in their favor, arguing that plaintiff's claims are time-barred by the applicable statutes of limitation.[26] Because I find that Fannie Mae is entitled to summary judgment on its quiet-title claims under a Federal Foreclosure Bar theory and that HERA's six-year extender statute saves those claims from being time barred, I enter judgment in Fannie Mae's favor on that theory, declare that the foreclosure sale did not extinguish the deed of trust, dismiss all remaining claims as moot, and deny the HOA and the Trust's summary-judgment motion.


         A. Fannie Mae's quiet-title claims are timely.

         The Trust and the HOA urge me to grant summary judgment in their favor and disregard Fannie Mae's own summary-judgment arguments because Fannie Mae's claims are time-barred. The Trust argues that Fannie Mae's claims are subject to the three-year statute of limitations in HERA for tort claims or, at best, the four-year state deadline found in NRS § 11.220, and because Fannie Mae filed this action more than four years after the foreclosure sale, its claims must be dismissed.[27] Fannie Mae agrees that its quiet-title claims get the benefit of HERA's federal statutory periods, but contends that it's HERA's six-year deadline for contract claims, not its three-year bar for torts, that applies here.[28]

         Section 4617(b)(12) of HERA, entitled “Statute of limitations for actions brought by conservator or receiver, ” provides “the applicable statute of limitations with regard to any action brought by the Agency as conservator or receiver” but identifies only two categories of claims: contract and tort.[29] The limitations period for “any contract claim” is the longer of six years or “the period applicable under State law”; and for “any tort claim, ” the deadline is the longer of three years or any applicable state-law period.[30] It would appear at first blush that HERA's limitations periods could not apply here because these claims are neither tort nor contract claims-they're equitable quiet-title claims. But courts interpreting HERA have held that § 4617(b)(12) applies to any claim brought by the FHFA as conservator “and supplants any other time limitations that otherwise might have applied.”[31] So, as I explained in FHFA v. LN Management LLC, Series 2937 Barboursville (“Barboursville I”), courts must perform “the square-peg-in-round-hole task of sorting [] equitable quiet-title claims into the contract or tort bucket” when HERA's limitations periods apply.[32] I held in Barboursville I that quiet-title claims based on the Federal Foreclosure Bar sort into the contract bucket, and I apply that same reasoning and conclusion to Fannie Mae's materially identical claims here.[33] And HERA's six-year extender statute applies to such quiet-title claims whether brought by the FHFA or Fannie Mae.[34] So, under HERA, “the applicable statute of limitations” for Fannie Mae's quiet-title claims is “the longer of” six years from claim accrual or “the period under State law.”[35] Because that state-law period would be four years, [36] I must apply HERA's longer six-year deadline to Fannie Mae's claims, making them timely. I thus deny the Trust and the HOA's motion for summary judgment based on the purported untimeliness of these claims, and I turn to the question of whether Fannie Mae has demonstrated that it is entitled to summary judgment based on the Federal Foreclosure Bar.

         B. Fannie Mae is entitled to summary judgment because the Federal Foreclosure Bar saved the deed of trust from extinguishment.

         In Berezovsky v. Moniz, the Ninth Circuit held that “the Federal Foreclosure Bar supersedes the Nevada superpriority lien provision, ”[37] preventing a non-judicial foreclosure sale under NRS Chapter 116 from extinguishing a Freddie Mac deed of trust without the FHFA's consent while that government enterprise is under the FHFA's conservatorship. Numerous Ninth Circuit panels have since applied Berezovsky to find that the Federal Foreclosure Bar similarly saved Fannie Mae deeds of trust from extinguishment during HOA foreclosure sales.[38] So the question here 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.

         1. The record establishes that Fannie Mae owned the deed of trust at the time of the foreclosure sale.

         There is no dispute that Fannie Mae was under the FHFA's conservatorship at the time of the 2012 foreclosure sale. However, the Trust does dispute whether plaintiffs have established that the deed of trust belonged to Fannie Mae at that time such that it became the property of the FHFA protected by the Federal Foreclosure Bar. The Trust argues that Nevada's statute of frauds prevents Fannie Mae from claiming any interest in this property without a written instrument. It notes that “the recorded, written documents in this case do not show Fannie Mae as the beneficiary of the loan[] at the time of the July 25, 2012[, ] foreclosure sale, ”[39] and it argues that those documents create the “conclusive presumption” that the deed of trust was not Fannie Mae's property.[40]

         The Trust overstates the application of this statutory presumption. It applies only in a dispute “as between the parties” to a written document.[41] Because the Trust is not a party to the deed of trust or any assignment of that interest, it cannot invoke this presumption. Nor can the Trust invoke the statute of frauds to preclude Fannie Mae from enforcing the deed of trust. “The defense of the statute of frauds is personal, and available only to the contracting parties or their successors in interest.”[42] The Ferrell Street Trust, “as a stranger to” the transfer of the loan and deed of trust, “is without standing” to invoke that defense.[43]

         Even without Fannie Mae as the beneficiary of record, the record establishes without genuine dispute that the deed of trust belonged to Fannie Mae at the time of this foreclosure sale. Fannie Mae offers the declaration of its Assistant Vice President Graham Babin and corroborating documents to show that Fannie Mae was the security instrument's owner. That declaration establishes that Fannie Mae “acquired ownership” of the loan and the deed of trust for this property in August 2002 and has continued to own the loan and deed of trust ever since.[44] It explains that, at the time of the foreclosure sale, beneficiary-of-record Bank of America was merely servicing the loan under the terms of Fannie Mae's Single-Family Servicer Guide, “which serves as a central document governing the contractual relationship between Fannie Mae and its loan servicers nationwide, including Bank of America.”[45] The corroborating documents include printouts of computer records, [46] which Babin explains in detail, along with relevant portions of Fannie Mae's publicly available Servicer Guide.[47]

         I find that Babin's declaration sufficiently establishes his familiarity with Fannie Mae's recordkeeping system and the authenticity of the printouts and Guide to lay the foundation required by Federal Rule of Evidence 902(11). And it establishes-with no materially contradictory evidence from the defendants-that the security interest on this property belonged to Fannie Mae at the time of the 2012 foreclosure sale, as it does today. The ballooning body of Federal Foreclosure Bar caselaw in this circuit supports this conclusion. The Nevada Supreme Court found a similar record sufficient to support summary judgment in favor of Freddie Mac based on the Federal Foreclosure Bar last year in Daisy Trust v. Wells Fargo Bank, N.A.[48] And the Ninth Circuit reached the same conclusion on near-identical records in Berezovsky and in Federal Home Loan Mortgage Corporation v. SFR Investments Pool 1, LLC.[49]

         It was not necessary, as the Trust argues, for the loan servicer to have been acting with a power of attorney.[50] The Trust claims that Fannie Mae's Guide requires a power of attorney before the loan servicer can “execute documents on behalf of Fannie Mae.”[51] But Guide Section A2-1-03, which the Trust relies on, does not limit the servicer's abilities to those done with a power of attorney, and NRS § 162A.480(2), which the Trust further cites, requires a power of attorney be recorded only for the conveyance of real property.[52] Because Fannie Mae is not using Bank of America as its agent to convey any real property, the absence of a power of attorney is irrelevant.

         2. Fannie Mae's failure to record its interest is inconsequential here.

         The Trust's additional argument that, to assert the Federal Foreclosure Bar against it, the deed of trust had to have been recorded in Fannie Mae's name was also expressly rejected in Daisy Trust. Like the Trust, the foreclosure-sale purchaser in Daisy Trust argued “that Nevada's recording statutes required Freddie Mac to record its interest in the loan.”[53] But the Nevada Supreme Court disagreed. It reasoned that, although the recording statutes currently require deed-of-trust assignments to be recorded, the version in effect in 2007 when Freddie Mac acquired the Daisy Trust property one was permissive, not mandatory, as it stated only that such an assignment “may be recorded.”[54] Thus, the Court held, “Nevada's recording statutes did not require Freddie Mac to publicly record its ownership interest as a prerequisite for establishing that interest.”[55]

         NRS § 106.210 did not require public recording of deeds of trust until 2011.[56] So, when Fannie Mae acquired its interest in this Pinnacle Court property in 2002, Nevada's recording statutes did not require Fannie Mae to record that interest. And although the Trust cites to the Nevada Supreme Court's decision in In re Montierth[57] to argue that Nevada law “requires recording of an interest to be notice to third parties, ”[58] that case fails to support its proposition. As the en banc Court confirmed in Daisy Trust, “consistent with . . . Montierth, the deed of trust did not [even] have to be ‘assigned' or ‘conveyed' to Freddie Mac in order for Freddie Mac to own the secured loan . . . .”[59] The lender's loan servicer “can serve as the record deed of trust beneficiary on behalf of a lender and a lender's successors such as . . . Freddie Mac in this case, ” as long as that record servicer “was at all times in an agency relationship with the note holder . . . .”[60] And here, the record shows without genuine dispute that named beneficiary Bank of America was in such a relationship with noteholder Fannie Mae. Because Nevada law recognizes that it is an acceptable practice for a loan servicer to serve as the beneficiary of record for the actual deed-of-trust beneficiary, Fannie Mae's interest in the deed of trust is not rendered unenforceable by the fact that its name did not appear in the official record.[61]

         3. There is no evidence that the FHFA consented to extinguish the deed of trust.

         There is also no legitimate dispute that the FHFA did not consent to wiping out Fannie Mae's deed of trust through this foreclosure. The FHFA issued a statement dated April 21, 2015, “confirm[ing] that it has not consented, and will not consent in the future, to the foreclosure or other extinguishment of any Fannie Mae or Freddie Mac lien or other property interest in connection with HOA foreclosures of super-priority liens.”[62] The defendants offer no evidence to suggest that the agency did consent. Instead, the Trust argues that I “should imply FHFA's consent to the” foreclosure because its failure to record its ownership of the deed of trust “prevented” the Trust “from knowing that Fannie Mae's consent was required.”[63] But Fannie Mae and the Agency need not take any action to ensure that the Federal Foreclosure Bar preserves a Fannie Mae deed of trust. As the Ninth Circuit stated in Federal Home Loan Mortgage Corporation v. SFR Investments Pool 1, LLC, “the bar on foreclosure sales lacking [the] FHFA's consents applies by default.”[64] Based on this feature of the Federal Foreclosure Bar, the Nevada Supreme Court has expressly rejected the notion that inaction can be construed as consent.[65] I decline the Trust's invitation to hold otherwise.

         The remainder of the Trust's arguments against the application of the Federal Foreclosure Bar require me to ignore or misconstrue 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 evidence not subject to genuine dispute that it is entitled to summary judgment on its quiet-title claims based on this theory. So, I grant summary judgment in favor of Fannie Mae on its Federal Foreclosure Bar claims and on the Trust's counterclaim and declare that 12 U.S.C. § 4617(j)(3) prevented the 2012 foreclosure sale from extinguishing Fannie Mae's deed of trust.

         C. All remaining claims are dismissed as moot.

         Because I am granting complete quiet-title relief based on Fannie Mae's Federal Foreclosure Bar theory, I need not and do not reach the merits of, or arguments challenging, any of Fannie Mae's other quiet-title theories. And because Fannie Mae's remaining claims as pled either are contingent upon a determination that the sale extinguished the deed of trust[66] or seek a pre-judgment remedy, [67] I dismiss all remaining claims as moot.


         IT IS THEREFORE ORDERED that Ferrell Street Trust's Motion for Summary Judgment Based on Statute of ...

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