Summit Real Estate Group, Inc. v. Federal Home Loan Mortgage Coropration et al

Filing 67

ORDER. It is HEREBY ORDERED that 58 Defendants Federal Home Loan Mortgage and M&T Bank's Motion for Summary Judgment is GRANTED; It is also ORDERED that 56 Plaintiff Summit Real Estate Group's Motion for Summary Judgment is DENIED; The Clerk of Court Shall enter JUDGMENT. Signed by Judge Kent J. Dawson on 2/25/2019. (Copies have been distributed pursuant to the NEF - MR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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SUMMIT REAL ESTATE GROUP, INC., a
Nevada Corporation,

ORDER
Plaintiff,

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Case No. 2:15-cv-00760-KJD-GWF

v.
FEDERAL HOME LOAN MORTGAGE
CORPORATION, et al.,

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Defendants.

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Before the Court are Cross-Motions for Summary Judgment filed by Plaintiff Summit

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Real Estate Group (#56) and Defendants Federal Home Loan Mortgage Corporation (Freddie

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Mac) and M&T Bank (#58). Each party has filed their related responses (##64, 66) and replies

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(##63, 65).

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This case examines whether the so-called Federal Foreclosure Bar of 12 U.S.C.

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§ 4617(j)(3) nullified the otherwise valid non-judicial foreclosure of a property located at 4525

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S. Dean Martin Drive, Unit 2211 in Las Vegas, Nevada. Plaintiff Summit Real Estate Group

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purchased the Dean Martin property at a HOA-foreclosure sale in January of 2013. It then sought

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to quiet title arguing that NRS § 116—Nevada’s superpriority lien scheme—extinguished any

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outstanding liens on the property, including the defendants’. Defendants Freddie Mac and M&T

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Bank countered that the Federal Foreclosure Bar preempted the HOA’s foreclosure and therefore

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prevented extinguishment of Freddie Mac’s interest in the property.

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The Federal Foreclosure Bar is a part of Congress’s response to the undercapitalization of

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the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage

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Association (Fannie Mae). In 2008, Congress passed the Housing and Economic Recovery Act

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to protect Fannie Mae and Freddie Mac assets from foreclosure. Among other things, the Act

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created the Federal Housing Finance Agency (FHFA) and vested the agency with authority to

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place Freddie Mac and Fannie Mae into conservatorship. Once under Agency conservatorship,

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Freddie Mac and Fannie Mae assets received federal protection from nonconsensual foreclosure.

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To warrant this federal protection, Freddie Mac must demonstrate (1) that it is under the

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conservatorship of the Federal Housing Finance Agency; (2) that it had a valid property interest

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in the Dean Martin property at the time of the HOA foreclosure; and (3) that it did not consent to

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that foreclosure. The Court finds that Freddie Mac has demonstrated each requirement.

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Accordingly, § 4617(j)(3) barred extinguishment of Freddie Mac’s lien, and the Court grants

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Freddie Mac’s Motion for Summary Judgment.

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I.

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In January of 2007, Mitchell Laborwit borrowed $425,160 to purchase a condominium in

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the Panorama Towers located at 4525 S. Dean Martin Drive, Unit 2211 in Las Vegas, Nevada. (#

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56 at 3). As a part of the Panorama Towers Condominium Unit Owners Association, the property

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was subject to the association’s recorded Covenants, Conditions, and Restrictions (“CC&Rs”).

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Id. Laborwit financed the purchase through Bank of America and secured the loan with split

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deeds of trust reflecting Bank of America’s interest in the property. Id. Freddie Mac claims that it

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purchased Laborwit’s loan from Bank of America in May of 2007. (#60 at 3) (Williams

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Declaration). It also claims that Freddie Mac never relinquished its interest in the loan and owns

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it to this day. Id. Summit disputes this and claims that the loan did not change ownership until

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2012 when the larger of Bank of America’s deeds of trust was assigned to M&T Bank. (#56 at

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3).

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Factual and Procedural Background

In 2012, Laborwit defaulted on his mortgage obligations and HOA assessments. (#56 at

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4). Those defaults prompted two separate foreclosure proceedings: one by Laborwit’s HOA to

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recover delinquent assessments and one by M&T Bank to recover the defaulted loan balance. Id.

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The HOA struck first and filed a notice of default and election to sell. Id. Summit purchased the

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home at the ensuing foreclosure auction. Id. Five months later, M&T Bank initiated its own

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foreclosure proceedings. Id. Those proceedings culminated in the second sale of the property to

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Freddie Mac. Id. Freddie Mac recorded its deed of trust in July of 2013. Id.

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Summit then brought this action in state court seeking to quiet title in the property and a

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declaration that its interest was superior to all others. (#1, Exh. 2). Summit initially named M&T

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Bank and former-owner Mitchell Laborwit as defendants. Id. Later, it amended its complaint to

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add Freddie Mac. Id. at Exh. 5. Freddie Mac moved to dismiss Summit’s complaint, which the

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state court granted. Id. at 4–5. However, during the subsequent appeal, the parties agreed to

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remand the case to state court. Id. Freddie Mac then removed the case to this Court. (#1). Shortly

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after removal, the Ninth Circuit issued Bourne Valley Court Trust v. Wells Fargo Bank, which

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declared NRS § 116 facially unconstitutional. 832 F.3d 1154 (9th Cir. 2016). Given Bourne

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Valley’s impact on Nevada foreclosure litigation and expecting the Ninth Circuit to rehear the

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case en banc, the parties agreed to stay their case pending a final determination by the Ninth

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Circuit. (#43). In early 2018, the parties agreed to lift the stay and set deadlines for dispositive

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motions. (#55). They then filed Cross-Motions for Summary Judgment (##56, 58) to which the

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Court now turns.

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II.

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The purpose of summary judgment is to isolate and dispose of factually unsupported

Legal Standard

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claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). It is available only

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where the absence of material fact allows the Court to rule as a matter of law. Fed. R. Civ. P.

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56(a); Celtoex, 477 U.S. at 322. Rule 56 outlines a burden shifting approach to summary

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judgment. First, the moving party must demonstrate the absence of a genuine issue of material

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fact. Once the moving party meets that burden, the burden shifts to the nonmoving party to

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produce specific evidence of a genuine factual dispute for trial. Matsushita Elec. Indus. Co. v.

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Zenith Radio Corp., 475 U.S. 574, 587 (1986). A genuine issue of fact exists where the evidence

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could allow “a reasonable jury [to] return a verdict for the nonmoving party.” Anderson v.

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Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court views the evidence and draws all

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available inferences in the light most favorable to the nonmoving party. Kaiser Cement Corp. v.

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Fishbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986). Yet, to survive summary

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judgment, the nonmoving party must show more than “some metaphysical doubt as to the

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material facts.” Matsushita, 475 U.S. at 586.

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III.

Analysis

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Freddie Mac’s interest in the Dean Martin property is preserved by the Federal

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Foreclosure Bar of 12 U.S.C. § 4617(j)(3). Accordingly, the HOA’s foreclosure was invalid

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absent Freddie Mac’s affirmative consent. It is settled law in this Circuit that § 4617’s Federal

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Foreclosure Bar preempts any state law that would extinguish Freddie Mac’s verifiable property

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interest without its consent. See Berezovksy v. Moniz, 869 F.3d 923, 926 (9th Cir. 2017) (the

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Federal Foreclosure Bar is a “prohibition on nonconsensual foreclosure”); Skylights LLC v.

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Byron, 112 F.Supp.3d 1145, 1152 (D. Nev. 2015) (the plain language of 12 U.S.C. § 4617(j)(3)

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bars an HOA foreclosure “regardless of the HOA lien’s super-priority under state law”). Just last

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year, the Nevada Supreme Court joined the Ninth Circuit finding that the Foreclosure Bar

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preempts Nevada law. Saticoy Bay LLC v. Fed. Nat’l Mortg. Ass’n, 417 P.3d 363 (Nev. 2018).

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Summit does not dispute that the Federal Foreclosure Bar generally applies to HOA-

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foreclosure sales under NRS § 116. Instead, it argues that the Foreclosure Bar does not prohibit

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this particular foreclosure because Freddie Mac did not have a valid interest in the property when

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the HOA foreclosed. (#56 at 11). Even if Freddie Mac did have such an interest, Summit argues,

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the foreclosure sale is entitled to a presumption of validity against all competing lien holders—a

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presumption, it contends, Freddie Mac has failed to rebut. Id. at 7. And finally, Summit claims

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that its status as a bona fide purchaser of the property entitles Summit to a clean title despite the

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Federal Foreclosure Bar. Id. at 13. The Court is not persuaded.

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Whether the Federal Foreclosure Bar nullified the HOA foreclosure here effectively boils

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down to three factors: (1) whether Freddie Mac or Fannie Mae was under FHFA’s

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conservatorship at the time of the foreclosure (12 U.S.C. §§ 4511, 4513); (2) whether Freddie

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Mac or Fannie Mae demonstrated a valid interest in the disputed property (Berezovsky, 869 F.3d

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at 932 n.8); and (3) whether Freddie Mac or Fannie Mae consented to the foreclosure

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(§ 4617(j)(3)). Here, Freddie Mac has demonstrated all three factors. Neither party disputes that

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Freddie Mac was under conservatorship and subject to FHFA at the time of the foreclosure.1

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The 2008 Housing and Economic Recovery Act classified Freddie Mac a “regulated entity” and placed it
under the “direct supervision” of the Federal Housing Finance Agency. 12 U.S.C. § 4511(b)(1); Perry Capital LLC
v. Mnuchin, 864 F.3d 591, 599 (D.C. Cir. 2017). The Act designated FHFA conservator over Freddie Mac’s assets
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Likewise, there is no evidence that Freddie Mac consented to the HOA foreclosure. As a result,

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the only disputed issue is whether Freddie Mac owned a valid interest in the Dean Martin

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property at the time of the HOA foreclosure.

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Freddie Mac has demonstrated that it acquired an interest in the Dean Martin property in

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2007 and never relinquished its ownership. Before Berezovsky, it was unclear what evidence

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was sufficient to demonstrate a valid property interest in Foreclosure Bar cases. Compare Green

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Tree Servicing, LLC v. Collegium Fund, LLC, No. 2:15-cv-0700-GMN-GWF, 2016 WL

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5429652 at *3 (Sept. 27, 2016) (finding that Fannie Mae owned an interest in the disputed

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property based on employee declarations and supporting business records) with Nationstar

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Mortg. LLC v. D’Andrea Comm. Ass’n, No. 3:15-cv-00377-RCJ-VPC, 2017 WL 58582 at *3

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(Jan. 4, 2017) (finding a question of fact whether Fannie Mae held a property interest after

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examining similar employee declarations and Fannie Mae business records). However,

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Berezovsky clarified that Freddie Mac’s detailed business records along with employee

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declarations to explain those records was enough to show genuine ownership of the disputed

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property. 869 F.3d at 932–33.

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Here, the Court examined the same evidence as did the Ninth Circuit in Berezovsky, and

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it comes to the same conclusion; Freddie Mac owned an interest in this property at the time of

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the HOA foreclosure. Freddie Mac provided internal business records from its loan status and

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“MIDAS” databases along with declarations by two employees that summarize and explain those

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records. (#59, Sanchez Declaration); (#60, Williams Declaration). The loan-status database and

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the MIDAS system track the details of the millions of properties in Freddie Mac’s loan portfolio.

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Williams Declaration at 3. Importantly, the databases record when Freddie Mac purchased the

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loan, who it purchased the loan from, and the details of any third-party servicer on the loan. Id.

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Regarding this property, MIDAS shows that Freddie Mac purchased the loan (including

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the deed of trust and note) on May 23, 2007. Id.; see also id., exh 1. Freddie Mac purchased the

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loan from “Seller Number 121898” who Williams identified as Bank of America. Id. The records

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also indicate that in February 2012, Freddie Mac assigned the deed of trust to an affiliate of

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and directed the Agency to reorganize, rehabilitate, or wind up Freddie Mac’s affairs. § 4617(a)(2). To this day
Freddie Mac remains a conservatee under FHFA’s direct supervision.

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M&T Bank to service the loan. Id. at 3–4. Finally, the MIDAS database and William’s

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declaration confirm that Freddie Mac still owns the loan. Id. at 3. Therefore, Freddie Mac has

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demonstrated that it held a valid interest in the Dean Martin Property since 2007, nearly five

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years before the HOA foreclosed.

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Nevertheless, Summit argues that Freddie Mac—by failing to promptly record its interest

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in the property—surrendered that interest. Admittedly, Nevada law generally requires recording

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of a lien before that lien is enforceable. Berezovsky, 869 F.3d at 932 (citing NRS § 106.210).

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However, the recorded instrument need not list the note owner by name. Id. Often, the recorded

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note and the deed of trust identify different parties. This “split” between the note owner and the

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beneficiary recorded on the deed of trust does not void either instrument. Id. (citing Edelstein v.

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Bank of N.Y. Mellon, 286 P.3d 249, 259 (Nev. 2012)). It merely creates a question of which

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entity has authority to foreclose. Id. Principles of agency determine which party has the power to

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foreclose on its interest. See id. at 258–59. A principle-agent relationship arises where the note

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owner assigns a beneficiary but retains authority to enforce its interest through foreclosure.

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Berezovsky, 869 F.3d at 932.

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Freddie Mac and M&T Bank shared a principal-agent relationship. Freddie Mac’s

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relationship with its loan servicers and beneficiaries is governed by the “Guide.” (#58 at 5).2 The

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Guide’s rules and regulations confirm that Freddie Mac retained ownership of any loan under its

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portfolio and had authority to direct the actions of its beneficiaries and servicers. For instance,

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Freddie Mac could “require the Seller or the Servicer . . . to make such . . . assignments and

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recordations of any of the Mortgage documents so as to reflect the interests of Freddie Mac” at

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any time. Freddie Mac, Single-Family Seller/Servicer Guide § 1301.10 (2019),

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http://www.freddiemac.com/singlefamily/pdf/guide.pdf (“The Guide”). Also, Freddie Mac could

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compel its agents to make assignments Freddie Mac deemed proper. Id. § 6301.6 (“Freddie Mac

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may, at its sole discretion and at any time, require a Seller/Servicer, at the Seller/Servicer’s

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expense, to prepare, execute and/or record assignments of the Security Interest to Freddie Mac”).

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Freddie Mac produced pertinent sections of the Guide in its Motion for Summary Judgment. The full
guide is available to the public at http://www.freddiemac.com/singlefamily/pdf/guide.pdf.

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Because M&T Bank was agent to Freddie Mac, Freddie Mac’s failure to promptly record its

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interest did not invalidate its ownership of the disputed property.
Finally, Summit argues that its status as a bona fide purchaser who purchased the

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property at a valid HOA sale is entitled to a presumption of clear title. Summit’s argument is a

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nonstarter. As stated, Berezovsky instructs that the Federal Foreclosure Bar protects Freddie

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Mac’s property interests from nonconsensual foreclosure. 869 F.3d 923. Any state law that

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impedes that purpose is preempted. Id. at 931. Nevada’s bona fide purchaser protections would

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provide Summit an end-run around the Foreclosure Bar. And so, those protections are

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preempted. See U.S. Bank Home Mortg. v. Jensen, No. 3:17-cv-00603 MMD-VPC, 2018 WL

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3078753, at *2 (D. Nev. June 20, 2018); JP Morgan Chase Bank, N.A. v. GDS Fin. Servs., No.

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2:17-cv-02451-APG-PAL, 2018 WL 2023123, at *3 (D. Nev. May 1, 2018) (citing Berezovsky,

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869 F.3d 923).
At bottom, the Federal Foreclosure Bar preempted the HOA foreclosure of 4525 S. Dean

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Martin Drive, Unit 2211 because that foreclosure was based upon NRS § 116, which conflicts

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with 12 U.S.C. § 4617(j)(3). Freddie Mac was under the conservatorship of the FHFA at the time

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of foreclosure, it owned a valid interest in the property, and it did not consent. Summit’s status as

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a bona fide purchaser of an otherwise valid foreclosure is not enough to hold otherwise.

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Therefore, the Court grants Freddie Mac and M&T Bank’s Motion for Summary Judgment

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(#58).
The Court’s judgment in favor of Freddie Mac and M&T Bank leaves Summit with

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claims against only Mitchell Laborwit, the former owner of the property. Those claims are now

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moot. Any interest that Mr. Laborwit held in the property was extinguished by M&T Bank’s

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lawful foreclosure. He cannot not provide the remedy Summit seeks. Alternatively, the Court

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finds no evidence that Summit served Mr. Laborwit as required by FRCP 4(m). Failure to

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properly serve a defendant is grounds for dismissal. Therefore, the Court dismisses Summit’s

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claims against Mr. Laborwit.

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IV.

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Accordingly, it is HEREBY ORDERED that Defendants Federal Home Loan Mortgage

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Conclusion

and M&T Bank’s Motion for Summary Judgment (#58) is GRANTED;
It is also ORDERED that Plaintiff Summit Real Estate Group’s Motion for Summary
Judgment (#56) is DENIED;
The Clerk of Court Shall enter JUDGMENT in favor of Defendants Federal Home Loan

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Mortgage Corporation and M&T Bank and against Summit Real Estate Group.

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Dated this 22nd day of February, 2019.

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_____________________________
Kent J. Dawson
United States District Judge

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