Kielty v. Federal Home Loan Mortgage Corporation et al

Filing 67

ORDER Granting in Part and Denying in Part 38 , 46 , and 53 Motions for Summary Judgment. IT IS FURTHER ORDERED that 48 Motion to Stay is DENIED as moot. Signed by Judge Robert C. Jones on 3/8/16. (Copies have been distributed pursuant to the NEF - TR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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______________________________________
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JOHN R. KIELTY,
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Plaintiff,
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vs.
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FEDERAL HOME LOAN MORTGAGE
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CORP. et al.,
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Defendants.
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2:15-cv-00230-RCJ-GWF
ORDER

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This case arises out of a condominium unit owners’ association foreclosure sale and the

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attempts of the purported holders of a first deed of trust to foreclose against the same unit

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thereafter. Pending before the Court are three Motions for Summary Judgment (ECF Nos. 38,

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46, 53) and a Motion to Stay (ECF No. 48).

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I.

FACTS AND PROCEDURAL HISTORY
On or about January 3, 2004, Defendant Joel B. Edralin purchased real property at 2181

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Hussium St., Unit 108, Las Vegas, Nevada, 89108 (the “Property”) via a $145,400 loan (the

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“Loan”) from non-party Charter Funding (“Charter”), giving a deed of trust (the “DOT”) against

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the Property as security, which was recorded on or about January 6, 2005. (See Compl. ¶¶ 2, 6,

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13–14, ECF No. 1, at 10). A declaration of covenants, conditions, and restrictions (the “CC&R”)

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had been recorded as to the Property by Counterdefendant Rancho Lake Condominiums Unit-

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Owners Association (the “CUOA”) on or about August 5, 2004. (Id. ¶¶ 9–10). Edralin failed to

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pay unit assessments under the CC&R, and the CUOA recorded a notice of assessment lien on

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December 20, 2011, a notice of default and election to sell on February 13, 2012, and a notice of

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foreclosure sale on May 20, 2013, selling the Property to Plaintiff John R. Kielty at auction on

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June 14, 2013 for an amount not specified in the Complaint. (See id. ¶¶ 18–24).

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In the meantime, Edralin had also defaulted on the Loan on or about May 1, 2011. (Id.

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¶ 33). On or about December 2, 2011, non-party Mortgage Electronic Registration Systems, Inc.

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(“MERS”) recorded an assignment of its interest in the DOT to non-party Bank of America, N.A.

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(“BOA”). (Id. ¶ 34). Another assignment was recorded on March 20, 2013, transferring BOA’s

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interest to Defendant Nationstar Mortgage LLC (“Nationstar”). (Id. ¶ 35). On or about July 26,

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2014 (after the CUOA sale), another assignment was recorded transferring Nationstar’s interest

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to Defendant Federal Home Loan Mortgage Corp. (“Freddie Mac”). (Id. ¶ 37). On or about July

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31, 2014, Defendant American Trustee Servicing Solutions, LLC (“ATSS”) recorded a notice of

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default against the Property based on Edralin’s default on the Loan, purporting to act on behalf

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of Nationstar, although Nationstar had transfered its interest to Freddie Mac. (Id. ¶¶ 40–41).

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Plaintiff sued Freddie Mac, Nationstar, ATSS, and Edralin in state court to quiet title to

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the Property in Plaintiff’s favor and enjoin any foreclosure based on the DOT, which Plaintiff

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argues was extinguished by the CUOA sale. Freddie Mac removed. Freddie Mac and Nationstar

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jointly answered and pleaded counterclaims for quiet title against Kielty, wrongful foreclosure

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against the CUOA, and declaratory and injunctive relief. Kielty answered the Counterclaim.

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The Court granted the Federal Housing Finance Agency’s (“FHFA”) motion to intervene as a

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Defendant. The CUOA answered the Counterclaim. Neither ATSS nor Edralin have appeared.

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Kielty has moved for offensive summary judgment on his claims, Freddie Mac and Nationstar

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have moved for offensive summary judgment on their counterclaims, and the CUOA has moved

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for defensive summary judgment against those counterclaims.

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II.

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LEGAL STANDARDS
A court must grant summary judgment when “the movant shows that there is no genuine

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dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.

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Civ. P. 56(a). Material facts are those which may affect the outcome of the case. See Anderson

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v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if

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there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See

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id. A principal purpose of summary judgment is “to isolate and dispose of factually unsupported

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claims.” Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986).
In determining summary judgment, a court uses a burden-shifting scheme. The moving

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party must first satisfy its initial burden. “When the party moving for summary judgment would

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bear the burden of proof at trial, it must come forward with evidence which would entitle it to a

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directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v.

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Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citation and internal quotation marks

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omitted). In contrast, when the nonmoving party bears the burden of proving the claim or

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defense, the moving party can meet its burden in two ways: (1) by presenting evidence to negate

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an essential element of the nonmoving party’s case; or (2) by demonstrating that the nonmoving

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party failed to make a showing sufficient to establish an element essential to that party’s case on

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which that party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323–24.

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If the moving party fails to meet its initial burden, summary judgment must be denied and

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the court need not consider the nonmoving party’s evidence. See Adickes v. S.H. Kress & Co.,

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398 U.S. 144 (1970). If the moving party meets its initial burden, the burden then shifts to the

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opposing party to establish a genuine issue of material fact. See Matsushita Elec. Indus. Co. v.

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Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute,

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the opposing party need not establish a material issue of fact conclusively in its favor. It is

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sufficient that “the claimed factual dispute be shown to require a jury or judge to resolve the

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parties’ differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors

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Ass’n, 809 F.2d 626, 631 (9th Cir. 1987). In other words, the nonmoving party cannot avoid

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summary judgment by relying solely on conclusory allegations unsupported by facts. See Taylor

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v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposition must go beyond the

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assertions and allegations of the pleadings and set forth specific facts by producing competent

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evidence that shows a genuine issue for trial. See Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S.

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at 324.

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At the summary judgment stage, a court’s function is not to weigh the evidence and

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determine the truth, but to determine whether there is a genuine issue for trial. See Anderson, 477

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U.S. at 249. The evidence of the nonmovant is “to be believed, and all justifiable inferences are

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to be drawn in his favor.” Id. at 255. But if the evidence of the nonmoving party is merely

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colorable or is not significantly probative, summary judgment may be granted. See id. at 249–50.

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Notably, facts are only viewed in the light most favorable to the non-moving party where there is

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a genuine dispute about those facts. Scott v. Harris, 550 U.S. 372, 380 (2007). That is, even

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where the underlying claim contains a reasonableness test, where a party’s evidence is so clearly

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contradicted by the record as a whole that no reasonable jury could believe it, “a court should not

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adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Id.

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III.

ANALYSIS

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A.

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This Court and others in the District have ruled that 12 U.S.C. § 4617(j)(3) prevents the

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sale of any property in which the FHFA (as conservator of Fannie Mae or Freddie Mac) has an

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interest without the FHFA’s consent. See My Global Vill., LLC v. Fed. Nat’l Mortg. Ass’n, No.

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2:15-cv-00211, 2015 WL 4523501, at *4 (D. Nev. July 27, 2015) (Jones, J.) (citing Skylights

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LLC v. Byron, ––– F. Supp. 3d ––––, 2015 WL 3887061 (D. Nev. 2015) (Navarro, C.J.)). The

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Skylights case has been cited multiple times by other judges of this District and only in approval.

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The Court considers this point of law settled unless and until the Court of Appeals rules

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Federal Preemption

otherwise.
The issue dispositive of much of this case is whether Freddie Mac held an interest in the

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Property at the time of the CUOA sale, which the parties dispute. The parties do not appear to

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dispute that the CUOA sale occurred on June 14, 2013. Freddie Mac argues that it purchased the

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Loan on February 7, 2005. In support, it provides the affidavit of Dean Meyer, its Director of

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Loss Mitigation, who attests that Freddie Mac’s records show that it acquired ownership of the

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Loan on or about February 7, 2005 and has owned it ever since. (See Meyer Aff. ¶¶ 2, 5.d, ECF

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No. 46-1). Meyer appears to explain away the contrary assignments recounted in the Complaint

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(and the Counterclaim) by noting that those were assignments of the DOT and/or the servicing

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rights, not the beneficial interest in the Loan itself, which Freddie Mac retained. (See id. ¶ 5.f–

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5.h).

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Plaintiff’s evidence, however, creates a genuine issue of material fact as to whether

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Freddie Mac owned the beneficial interest in the Loan at the time of the CUOA sale. The DOT

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notes that the lender was Charter, and that MERS was both the lender’s nominee and the

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beneficiary of the DOT. (See DOT 1–3, Jan. 3, 2005, ECF No. 38-3). The first assignment is an

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assignment by MERS of the DOT “together with the Promissory Note secured” to BOA.

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(Assignment, Sept. 21, 2011, ECF No. 38-4). MERS had the ability to transfer both its own

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interest in the DOT and Charter’s interest in the Loan, and the transfer to a single entity (BOA)

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cured any split between those interests. See Edelstein v. Bank of N.Y. Mellon, 286 P.3d 249, 259–

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60 (Nev. 2012). The next assignment from BOA to Nationstar also transferred both the Loan

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and the DOT. (Assignment, Feb. 27, 2013, ECF No. 38-5). Even if the assignment had not

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explicitly transferred both, after the contractual split had been cured, one followed the other as a

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matter of law absent any contractual language providing otherwise. See Edelstein, 286 P.3d at

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258 (citing Restatement (Third) of Prop.: Mortgages § 5.4(a)–(b) (1997)). The next assignment

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from Nationstar to Freddie Mac (after the CUOA sale) appears to have only transferred the DOT,

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(see Assignment, July 18, 2014, ECF No. 38-11), but the Loan presumably followed as a matter

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of law, see Edelstein, 286 P.3d at 258 (citing Restatement (Third) of Prop.: Mortgages § 5.4(a)–

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(b) (1997)).

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Not only has Plaintiff shown a genuine issue of material fact as to whether Freddie Mac

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had any interest in the Property at the time of the CUOA sale in this case, his own evidence

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eliminates any question of fact, and Freddie Mac has adduced only a single, self-interested

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affidavit to the contrary that is so contradicted by the record as a whole that a reasonable jury

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could not believe it. See Scott, 550 U.S. at 380. Freddie Mac produces no underlying

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documents—none— tending to show its interest in the Property to counter the clear chain of

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documents provided by Plaintiff showing that Freddie Mac obtained no interest in the Property

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until after the CUOA sale. Freddie Mac offers only a declaration by its own employee stating his

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belief that Freddie Mac owned the Loan at the relevant time based on entries in Freddie Mac’s

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own computer database. But even this employee does not claim that Freddie Mac owned the

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DOT at the relevant time, which means that by Freddie Mac’s own evidence, it had no interest in

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the Property itself at the time of the CUOA sale. He admits Freddie Mac did not receive any

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interest in the DOT until after the CUOA sale. (See Meyer Aff. ¶ 5.i). And apart from Meyer’s

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bare claim, the evidence does not even tend to show that Freddie Mac obtained the Loan itself on

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February 7, 2005. The screen shot adduced simply identifies that date as the “funding date.”

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That doesn’t imply Freddie Mac was the beneficiary. It is clear Freddie Mac was not the lender

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(Charter was) and therefore did not fund the loan itself, so “funding date” has no connection to

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Freddie Mac’s purported acquisition of an interest in the Loan or DOT. A field name such as

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“acquisition date” as opposed to “funding date” would at least be some evidence Freddie Mac

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held the Loan. Freddie Mac guaranties many loans it does not hold, and this screen shot does not

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tend to show that the Loan here is one Freddie Mac held rather than simply guarantied. This

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evidence is woefully inadequate to create a genuine issue of material fact as to the ownership of

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the Loan, much less the DOT, as of the date of the CUOA sale. The exhibits attached to the

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Counterclaim itself do not include a copy of any instrument tending to show Freddie Mac had

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any interest in the Loan or DOT until after the CUOA sale, and the allegation in the

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Counterclaim that Freddie Mac “obtained an interest in the Property and 2005 Deed of Trust” in

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2005, (see Countercl. ¶ 15, ECF No. 10), is contradicted by the surrounding allegations (and

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attached evidence) indicating that other entities in fact held both the Loan and the DOT from

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inception through the CUOA sale, (see id. ¶¶ 17–19 & Exs. 3–5).

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Plaintiff and the CUOA are entitled to summary judgment on the 12 U.S.C. § 4617(j)(3)

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issue. Defendants, however, also argue in their Answer and Counterclaim that the CUOA sale

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was defective for other reasons such that the DOT was not extinguished thereby. As successors-

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in-interest to the DOT—there is no genuine dispute that Freddie Mac obtained the Loan (and

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DOT, assuming it had not been extinguished) after the CUOA sale—they have standing to make

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these arguments. Specifically, Defendants argue a lack of commercial reasonableness in the

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CUOA sale, a violation of a statutory duty of good faith, satisfaction of the superpriority portion

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of the CUOA lien prior to the CUOA sale, and due process violations via insufficient notice.

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The Court will address those issues in turn. Defendants have not moved for summary judgment

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on these additional issues, but Plaintiff has.

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B.

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The Nevada Supreme Court recently ruled that an association’s foreclosure sale may be

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set aside under a court’s equitable powers notwithstanding any recitals on the foreclosure deed

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where there is a “grossly inadequate” sales price and “fraud, unfairness, or oppression.” Shadow

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Wood Homeowners Assoc., Inc. v. N.Y. Cmty. Bancorp, Inc., 132 Nev. Adv. Op. 5, 2016 WL

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347979, at *4–6 (Nev. 2016). The Court remanded for further fact-finding but noted that the

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general rule for gross inadequacy was 20% of fair market value, that the Court had in the past

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approved sales for as low as 28.5%, and that the apparent 23% ratio in the case before it was not

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“obviously” inadequate. See id. at *6 (citing Golden v. Tomiyasu, 387 P.2d 989, 993 (Nev.

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1963); Restatement (Third) of Prop.: Mortgages § 8.3 cmt. b (1997)). The Court also noted that

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a foreclosing entity’s (or its agent’s) behavior with respect to a first mortgagee’s attempts to

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satisfy the superpriority portion of an association lien before foreclosure was relevant to the

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second question on remand. See id. at *7.

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Commercial Reasonableness of the CUOA Sale

The Counterclaim alleges that the fair market value of the Property at the time of the

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CUOA sale exceeded $41,000 but the sales price was $9,100, i.e., slightly over 22% of the fair

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market value. (See Countercl. ¶¶ 43–44). The sales price does not appear to be disputed, but no

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evidence of fair market value is adduced. Plaintiff has therefore not satisfied his initial burden as

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to this issue, and the Court will not grant summary judgment. The issue will have to be tried.

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C.

The Duty of Good Faith under NRS 116.1113

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“Every contract or duty governed by this chapter imposes an obligation of good faith in

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its performance or enforcement.” Nev. Rev. Stat. § 116.1113. The Court has seen claims before

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that a first mortgagee is an intended third-party beneficiary of a provision of CC&R contractually

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subordinating association liens to first mortgages. The CC&R in this case are attached as Exhibit

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6 to the Counterclaim, but Defendants do not identify which provision of the CC&R they believe

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the CUOA acted in bad faith with respect to, and the Court can find no such subordination claim

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therein. The Court therefore grants summary judgment in favor of Plaintiff on this issue, which

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is essentially pled as an affirmative defense tied to the commercial unreasonableness issue.

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Defendants have not identified any provision of the CC&R with respect to which they allege the

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CUOA acted in bad faith.

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D.

Satisfaction of the Superpriority Portion of the Lien

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This issue is inextricably tied to the equitable issue identified above. Plaintiff mainly

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argues that the recitals in the foreclosure deed are conclusive and therefore no argument of

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commercial unreasonableness based on inadequacy of price or refusals to accept the

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superpriority portion of the CUOA lien can succeed. But the Nevada Supreme Court rejected

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those arguments in Shadow Wood, elucidating the standards to be applied on remand as to when

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an association sale may be equitably invalidated (or when a deed of trust that would have been

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extinguished in the absence of any iniquity could be validated as having survived). The Court

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has found that those issues must be tried. 1

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1 The Court notes that Defendants have alleged only that the CUOA failed to identify the
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E.

Due Process

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As this Court has noted before, although the Court of Appeals has ruled that a private sale

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under the foreclosure statutes does not implicate due process absent state or local government

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involvement in the CUOA sale itself, due process standards apply where a party asks a court to

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affirm the validity of such a sale. See US Bank, N.A. v. SFR Invs. Pool I, LLC, --- F. Supp. 3d, ---

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-, 2015 Wl 5023450, at *8–14 (D. Nev. 2015). Accordingly, Plaintiff and Counterdefendant are

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entitled to defensive summary judgment against the Counterclaims in this regard, because

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Freddie Mac and Nationstar do not allege government involvement in the CUOA sale itself. See

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id. at *10. But neither party is entitled to summary judgment as a matter of law on the due

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process issue as to Plaintiff’s affirmative claims; those claims must be determined on the facts

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under the summary judgment standards. See id. at *11–14. Plaintiff provides no evidence of

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having mailed or otherwise given notice to Defendants’ predecessors-in-interest of the notice of

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sale that would satisfy due process requirements. See id. He offers only a copy of the notice of

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sale itself. His allegation in the Complaint that “[u]pon information and belief, copies of the

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[notice of sale] were sent to all parties with an interest in the Property and Deed of Trust via

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certified mail and/or first class mail,” is unsupported by any evidence adduced. (See Compl.

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¶ 22). He has therefore not satisfied his initial burden on summary judgment as to the issue, and

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the issue must be tried.

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superpriority amount during the foreclosure process, not that the CUOA rejected a tender of the
amount by a predecessor-in-interest, which is a much stronger type of claim in this context.
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CONCLUSION

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IT IS HEREBY ORDERED that the Motions for Summary Judgment (ECF Nos. 38, 46,

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53) are GRANTED IN PART AND DENIED IN PART. The CUOA sale of June 14, 2013 was

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not preempted by 12 U.S.C. § 4617(j)(3), and the CUOA did not act in bad faith under NRS

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116.1113. The Court grants summary judgment to Plaintiff and Counterdefendant and denies it

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to Defendants on these points. The Court also grants summary judgment to Plaintiff and

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Counterdefendant and denies it to Defendants as to Defendants’ counterclaim that Defendants’

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predecessor-in-interest did not receive constitutionally sufficient notice of the CUOA sale. As to

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Plaintiff’s claim that Defendants’ predecessor-in-interest received sufficient notice of the CUOA

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sale and as to whether the CUOA sale may be equitably avoided or the deed of trust equitably

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revived due to a grossly inadequate sales price and fraud, unfairness, or oppression, those issues

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must be tried.

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IT IS FURTHER ORDERED that the Motion to Stay (ECF No. 48) is DENIED as moot.

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IT IS SO ORDERED.

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DATED: 13th day of February, 2016.
Dated thisThis 8th day of March, 2016.

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ROBERT C. JONES
United States District Judge

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