Shirehampton Drive Trust v. JP Morgan Chase Bank N.A. et al
Filing
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AMENDED ORDER regarding 82 Motion for Summary Judgement signed by Judge Richard F. Boulware, II on 5/6/2024. (Copies have been distributed pursuant to the NEF - DRS)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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***
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SHIREHAMPTON DRIVE TRUST,
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Plaintiff,
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AMENDED ORDER
v.
JPMORGAN CHASE BANK,
NATIONAL ASSOCIATION, et al.,
Defendants.
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Case No. 2:16-cv-02276-RFB-EJY
UNITED STATES,
Counter Claimant,
v.
JPMORGAN CHASE BANK,
NATIONAL ASSOCIATION, et al.,
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Counter Defendants.
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JPMORGAN CHASE BANK, NATIONAL
ASSOCIATION,
Counter Claimant,
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v.
SHIREHAMPTON DRIVE TRUST,
Counter Defendant.
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Before the Court is JPMorgan Chase Bank, National Association’s Post-Remand Motion
for Summary Judgment. ECF No. 82. For the following reasons, the Court grants the motion.
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I.
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FACTUAL BACKGROUND
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The Court makes the following findings of undisputed facts.
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The property at issue in this matter is located at 705 Shirehampton Drive, Las Vegas,
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Nevada 89178 (“the property”). The property sits in a community governed by the Essex at
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Huntington Homeowners Association (“HOA”). The HOA requires its community members to
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pay dues.
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In 2008, Louisa Oakenell borrowed $340,407.00 to purchase the property by obtaining a
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loan from MetLife Home Loans, a Division of MetLife Bank, N.A. (“MetLife”). As part of this
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process, Oakenell executed a promissory note and corresponding deed of trust to secure repayment
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of the note. The deed of trust lists Oakenell as the borrower, MetLife as the lender, and Mortgage
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Electronic Registration Systems, Inc. (“MERS”), as the beneficiary. The deed of trust was recorded
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on December 24, 2008.
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After Oakenell stopped paying federal income taxes, the IRS filed notices of federal tax
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liens against Oakenell at the Clark County Recorder's office on May 1, 2009, and June 24, 2009.
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As of October 1, 2018, Oakenell had accrued $250,953.37 in income tax liability plus daily
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compounding interest.
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Oakenell fell behind on HOA payments. The HOA, through its agent Red Rock Financial
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Services, LLC (“Red Rock”) sent Oakenell a demand letter by certified mail for the collection of
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unpaid assessments on June 26, 2009. The following month, on July 21, 2009, the HOA, through
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Red Rock, recorded a notice of delinquent assessment lien. The HOA sent Oakenell a copy of the
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notice of delinquent assessment lien on July 24, 2009. The HOA subsequently recorded a notice
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of default and election to sell on October 21, 2009.
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On September 18, 2012, the HOA recorded a notice of foreclosure sale. Red Rock mailed
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copies of the notice of default and election to sell to Oakenell, the HOA, Republic Services, the
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IRS, and MetLife Home Loans. Red Rock did not mail a copy of the notice of default and election
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to sell to MERS. On January 28, 2013, the HOA held a foreclosure sale on the property under NRS
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Chapter 116. Shirehampton entered the high bid of $9,700.00. A foreclosure deed in favor of
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Shirehampton was recorded on February 7, 2013.
More than four years after its recording, in May 2013, MERS assigned the deed of trust to
JPMorgan Chase Bank, National Association (“Chase”).
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II.
PROCEEDURAL BACKGROUND
a. Original District Court Proceedings
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Plaintiff Shirehampton sued Defendants on September 1, 2016, in the Eighth Judicial
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District Court in Clark County, Nevada. ECF No. 1-1. Shirehampton sought a court declaration
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that the property is not encumbered by Chase’s deed of trust. To that end, Shirehampton has
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asserted claims for injunctive relief, quiet title, and declaratory relief.
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The IRS removed the case to federal court on September 28, 2016. ECF No. 1. On October
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12, 2016, the IRS answered and counterclaimed against Plaintiff (and crossclaimed against
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Defendants) to enforce federal tax liens pursuant to 26 U.S.C. §§ 6321, 6322 and 7401. ECF No.
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6. Chase answered the complaint on October 27, 2016, and asserted counterclaims for quiet title
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under NRS 40.010, declaratory relief under NRS 30.010 and 28 U.S.C. § 2201, and unjust
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enrichment. ECF No. 8. Shirehampton answered the counterclaims. ECF Nos. 11, 13.
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On March 13, 2017, the Court dismissed Defendants MTC Financial Inc and Louisa
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Oakenell without prejudice. ECF No. 20. On August 24, 2017, all remaining parties moved for
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summary judgment. ECF Nos. 24-26, 28. On March 22, 2018, the Court administratively stayed
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the case pending the Nevada Supreme Court's decision in SFR Investments Pool 1, LLC v. Bank
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of New York Mellon, 134 Nev. 483 (2018), and denied all pending summary judgment motions
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without prejudice. ECF No. 39. On August 23, 2018, the Court lifted the stay. ECF No. 41. All
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remaining parties moved for summary judgment on September 24, 2018. ECF Nos. 42 -45. All
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motions were fully briefed. ECF Nos. 47-50, 53-56.
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b. The Shirehampton I Order
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On September 29, 2019, the Court granted summary judgment in favor of Shirehampton
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and the IRS. ECF No.63. In Shirehampton Drive Tr. v. JPMorgan Chase Bank, Nat'l Ass’n
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(“Shirehampton I”), the Court held that the IRS may enforce its tax liens against the current owner
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of the property and that Shirehampton acquired the property free and clear of Chase’s deed of trust.
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417 F. Supp. 3d 1342, 1348 (D. Nev. 2019).
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The Court, relying on the Nevada Supreme Court’s decision in West Sunset 2050 Trust v.
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Nationstar Mortg. LLC, 134 Nev. 352 (2018), concluded that, although the HOA did not comply
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with the notice requirement in the version of NRS 107.090 in effect at the time, and the HOA did
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not serve JPMorgan’s predecessor in interest with a copy of the notice of default, JPMorgan failed
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to show how its predecessor-in-interest was prejudiced. See Shirehampton I, 417 F. Supp. 3d at
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1345. Like in West Sunset, JP Morgan “had record notice of the notice of default and the notice
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of foreclosure sale because it was assigned the deed of trust after both notices had already been
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recorded.” Id. at 1346. JP Morgan also “ha[d] not alleged any prejudice resulting from the defective
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notice.” Id.
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Thus, the Court found that West Sunset was “controlling here and thus the imperfect notice
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did not render the sale void.” Id. The Court then addressed JP Morgan’s argument that the HOA
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did not intend to foreclose on the subpriority portion. Id. at 1346-47 The Court found that the
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evidence was insufficient to establish that the HOA did not intend to foreclose on the subpriority
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portion of the lien. Id. Specifically, the HOA’s letter to JP Morgan’s predecessor-in-interest
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suggests the opposite. Id. The Court incorporated by reference its holdings in Carrington Mortg.
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Servs., LLC v. Tapestry at Town Ctr. Homeowners Ass’n, 381 F. Supp. 3d 1289, 1294 (D. Nev.
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2019), where it held that NRS Chapter 116 is not unconstitutional on its face. Id. at 1347.
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c. The Shirehampton II Order
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Shirehampton timely appealed the determination the IRS tax liens were enforceable, and
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Chase timely appealed the Court’s holding that Shirehampton acquired the property free and clear
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of Chase’s deed of trust. ECF No. 67, 67. The Ninth Circuit affirmed regarding the IRS tax liens,
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Shirehampton Drive Tr. v. United States Dep’t of Treasury, 827 F. App’x 775 (9th Cir. 2020).
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However, in Shirehampton Drive Tr. v. JPMorgan Chase Bank, N.A. (“Shirehampton II”), the
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Ninth Circuit reversed this Court’s holding regarding the determination of the status of Chase’s
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deed of trust. 835 F. App’x 181 (9th Cir. 2020).
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On appeal, Chase argued, inter alia, that “the foreclosure sale did not extinguish the deed
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of trust and that the sale was voidable” because “the grossly inadequate auction purchase price of
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$9,700 (compared to a fair market value of approximately $270,000) made the sale voidable.”
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Shirehampton II, 835 F. App’x at 183. The Ninth Circuit concluded, relying on Nationstar Mortg.,
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LLC v. Saticoy Bay LLC Series 2227 Shadow Canyon (“Shadow Canyon”), 405 P.3d 641 (Nev.
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2017), that there were facts on the record that suggested that the sale was voidable for unfairness.
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Shirehampton II, 835 F. App’x at 183.
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The Ninth Circuit noted that “the sale price was exceptionally low, 3.5 percent of the fair
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market value.” Id. While it acknowledged that “low price alone does not condemn the sale,” the
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Ninth Circuit nevertheless found that “two irregularities that the Nevada Supreme Court has
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specifically stated may rise to the level of fraud, unfairness, and oppression, and which, when
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combined with a low sale price, ma[d]e the sale here voidable.” Id.
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The Ninth Circuit identified two irregularities. First, the HOA did not mail the statutorily
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required notices to the deed of trust beneficiary, JP Morgan’s predecessor in interest. Id. Second,
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“[the HOA] falsely represented in its letter to [the predecessor in interest] that the HOA’s lien is
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“junior only to the Senior Lender/Mortgage Holder.” Id. at 184. This “suggests that an eventual
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foreclosure sale by the HOA would not extinguish the deed of trust when, in fact, it would under
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Nevada law.” Id. The Ninth Circuit used this second finding to distinguish West Sunset, which
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had found no alleged false representation. Id. (citing U.S. Bank, Nat'l Ass'n ND v. Res. Grp., LLC,
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444 P.3d 442, 449 (Nev. 2019)).
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Because the case was distinguished from West Sunset, which Shirehampton I relied upon,
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the Ninth Circuit “reverse[d] the grant of summary judgement in favor of Shirehampton and
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remand for further proceedings consistent with this disposition.” Id.
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d. Proceedings on Remand
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On November 2, 2021, this Court issued an Order on Mandate and set a Status Conference
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for November 19, 2021. ECF No. 75, 76. At the status conference, the Court ordered the parties to
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brief a Motion for Summary Judgement on whether a trial should be held, or, in the alternative,
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judgement entered based on Shirehampton II. ECF No. 77.
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On January 10, 2022, Chase filed the instant motion for summary judgment. ECF No. 82.
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The motion was fully briefed. ECF No. 84, 85. This Court held a hearing on June 28, 2022, where
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it made preliminary statements and heard representations of counsel regarding the motion for
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summary judgment. ECF No. 88.
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III.
LEGAL STANDARD
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Summary judgment is appropriate when the pleadings, depositions, answers to
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interrogatories, and admissions on file, together with the affidavits, if any, show “that there is no
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genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
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Fed. R. Civ. P. 56(a); accord Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The substantive
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law governing a matter determines which facts are material to a case. Anderson v. Liberty Lobby,
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477 U.S. 242, 248 (1986).
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The moving party bears the burden of showing the absence of material fact. Celotex, 477
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U.S. at 323. The burden then shifts to the nonmoving party to show specific facts demonstrating a
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genuine factual dispute for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
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574, 587 (1986). When considering the propriety of summary judgment, the court views all facts
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and draws all inferences in the light most favorable to the nonmoving party. Gonzalez v. City of
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Anaheim, 747 F.3d 789, 793 (9th Cir. 2014).
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However, the nonmoving party may not merely rest on the allegations of her pleadings.
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She must produce specific facts by affidavit or other evidence showing a genuine issue of fact.
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Anderson, 477 U.S. at 256 (1986). In other words, the nonmoving party “must do more than simply
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show that there is some metaphysical doubt as to the material facts . . . . Where the record taken
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as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine
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issue for trial.” Scott v. Harris, 550 U.S. 372, 380 (2007) (alteration in original) (internal quotation
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marks omitted). It is improper for the Court to resolve genuine factual disputes or make credibility
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determinations at the summary judgment stage. Zetwick v. Cty. of Yolo, 850 F.3d 436, 441 (9th
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Cir. 2017) (citations omitted).
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IV.
DISCUSSION
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The Court finds that it must address two issues. The adequacy of the foreclosure and the
impact of the bona fide purchaser analysis on the title to the subject property.
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In Nevada, the proper conclusion of a foreclosure on a homeowners’ association super
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priority lien extinguishes all junior leans—including a first deed of trust. SFR Invs. Pool 1 v. U.S.
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Bank, 130 Nev. 742 (2014). However, a court may provide equitable relief from an homeowners’
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association lien foreclosure sale where there is an inadequacy of price alongside proof of some
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element of fraud, unfairness, or oppression that accounts for and brings about that inadequate price.
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See U.S. Bank, N.A. v. S. Highlands Cmty. Ass'n, 999 F.3d 1185 (9th Cir. 2021) (collecting and
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reviewing the relevant Nevada case law and history). If such a foreclosure sale is found to be
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voidable by a court, only a finding that the purchaser is a bona fide purchaser will preserve the
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competing title of the purchaser. See U.S. Bank v. Res. Grp. LLC, 135 Nev. 199, 205 (2019).
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Chase argues that Shirehampton II established that the foreclosure sale here is voidable as
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a matter of law and that Shirehampton is not a bona fide purchaser. Shirehampton, by contrast,
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argues that the foreclosure sale is not voidable and, even if it were, that Shirehampton is a bona
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fide purchaser. The Court first looks to the effect of Shirehampton II on this case before turning to
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the voidability versus bona fide purchaser analysis.
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a. The Effect of Shirehampton II
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Shirehampton II reviewed this Court’s order in Shirehampton I de novo. 835 F. App’x at
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182 (citing LN Mgmt., LLC v. JPMorgan Chase Bank, N.A., 957 F.3d 943, 949 (9th Cir. 2020)).
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The Ninth Circuit viewed the evidence in the record in the light most favorable to Chase and then
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determined whether there were any genuine issues of material fact and whether Shirehampton I
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applied the relevant substantive law. Riley’s Am. Heritage Farms v. Elsasser, 32 F.4th 707, 719
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(9th Cir. 2022) (quoting L.F. v. Lake Walsh. Sch. Dist. #414, 947 F.3d 621, 625 (9th Cir. 2020)).
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Importantly, the Ninth Circuit “do[es] not weigh the evidence or determine the truth of contested
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matters; [they] look only to whether a material factual dispute remains for trial. Abdul-Jabbar v.
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General Motors Corp., 85 F.3d 407, 410 (9th Cir. 1996).
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As explained previously, Shirehampton I relied significantly on the Nevada Supreme
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Court’s decision in West Sunset. 417 F. Supp. 3d at 1346. This Court made two factual findings
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concerning irregularities. First, that Chase had record notice of default and notice of the foreclosure
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sale and under West Sunset that prevented rending the sale void. Id. Second, that Chase's evidence
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is insufficient to find that the HOA intended to foreclose on the subpriority portion of the lien as a
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matter of law. Id. at 1346-47. With no irregularities found, the Court held that the sale was not
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voidable and, thus, Shirehampton prevailed as a matter of law. Id. at 1345. Because there were no
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irregularities, the Court made no factual findings regarding whether the sale price was inadequate
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and, if so, to what extent. See id. at 1344-45. Indeed, one of the arguments raised by Chase with
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the Ninth Circuit was that this Court had failed to make any factual findings.
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Reading the facts in the light most favorable to Chase, the Ninth Circuit made three
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observations: (1) that the sale price was “exceptionally low,” (2) that Red Rock failed to send the
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statutorily required notices, and (3) that Red Rock falsely suggested in its letter to MetLife that a
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foreclosure sale would not extinguish the deed of trust. Shirehampton II, 835 F. App’x at 183-84.
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On that basis, the Ninth Circuit distinguished West Coast and said the two irregularities “may rise
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to the level of fraud, unfairness, or oppression, and which, when combined with a low sale price,
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make the sale here voidable.” Shirehampton II, 835 F. App’x at 183. Therefore, Shirehampton II
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held that summary judgement for Shirehampton was erroneous.
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Chase argues that Shirehampton II established as “law of the case” that the foreclosure sale
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was voidable. Chase points to the Ninth Circuit’s statement that “the grossly inadequate sales price,
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combined with Red Rock’s misrepresentation of the effect of the foreclosure and the failure to
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provide statutorily required notice, render the sale voidable for unfairness.” Id. at 184. To support
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this proposition Chase cites United States v. Houser, 804 F.2d 565 (9th Cir. 1986). Houser stands
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for the well-worn principle that reconsideration of legal questions previously decided should be
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avoided and, in the case of a district court, are binding when decided by an appellate court. Id. at
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567. Accordingly, Chase argues that since the Court must not reconsider whether the sale is
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voidable, the sole issue remaining on remand for a determination is whether Shirehampton is a
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bona fide purchaser.
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Shirehampton argues that Shirehampton II does not bind the Court because the issue of
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whether the foreclosure sale was voidable as a matter of law was not before the Ninth Circuit.
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Instead, Shirehampton argues that the Ninth Circuit states that review is of the entry of summary
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judgement in Shirehampton’s favor and that the issue of whether the foreclosure sale was voidable
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as a matter of law would only have arisen on an appeal of an order granting Chase summary
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judgement.
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To comply with the law of the case doctrine, the Court must follow the legal issue settled
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in Shirehampton II. Law of the Case applies to legal issues settled on appeal. Planned Parenthood
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of Cent. & N. Ariz. v. Arizona, 718 F.2d 938, 949 (9th Cir. 1983) (“[T]he decision of a legal issue
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by an appellate court must be followed in all subsequent proceedings in the same case at either the
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trial or appellate level.”); Houser, 804 F.2d at 567 (The term "law of the case" applies to the
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principle that in order to maintain consistency during the course of a single lawsuit, reconsideration
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of legal questions previously decided should be avoided.”); see also 18 JAMES WM. MOORE ET
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AL., MOORE’S FEDERAL PRACTICE ¶134.20[1] (“law of the case doctrine is concerned with
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the extent to which law is applied in decisions at various stages of litigation becomes the governing
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principle in later stages.”).
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The Court finds that the Ninth Circuit in Shirehampton II explicitly found that, considering
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the facts in the light most favorable to Chase, these facts “may rise to the level of fraud, unfairness,
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or oppression, and which, when combined with a low sale price, make the sale here voidable.”
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Shirehampton II, 835 F. App’x at 183 (emphasis added). In short, there remained a dispute of
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material fact preventing summary judgement for Shirehampton. See Abdul-Jabbar, 85 F.3d at 410.
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Importantly, the Court finds that what Shirehampton II did not say is that because the facts
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on the record did not support summary judgment for Shirehampton ipso facto the facts supported
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summary judgment for Chase. Were that the case, the Ninth Circuit had the denial of Chase’s
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summary judgement motion before it and could have remanded with instructions to enter summary
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judgment in favor of Chase. Padfield v. AIG Life Ins. Co., 290 F.3d 1121, 1124 (9th Cir. 2002)
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(“[A]n order denying summary judgment is reviewable when, as is the case here, it is coupled with
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a grant of summary judgment to the opposing party. We review both a denial and a grant of
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summary judgment de novo.”) (citations omitted); see also McKeen-Chaplin v. Provident Sav.
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Bank, 862 F.3d 847, 855 (9th Cir. 2017) (“[W]e must reverse the district court's grant of summary
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judgment in favor of Provident and remand with instructions to enter summary judgment in favor
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of [Appellees].”). Similarly, the Ninth Circuit could have remanded with instructions to decide the
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case on the issue of whether Shirehampton is a bona fide purchaser. See, e.g., Rudebusch v.
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Hughes, 313 F.3d 506 (9th Cir. 2002) (remanding with instructions for a finder of fact to determine
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an issue where the record on appeal of summary judgment could not settle the issue); Ass'n for
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L.A. Deputy Sheriffs v. Cnty of L.A., 648 F.3d 986 (9th Cir. 2011) (similar). The Ninth Circuit
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did neither.
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Based upon this application of the appellate order to the record in this case, this Court
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finds that Ninth Circuit has remanded this case for this Court to consider whether the factual
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findings in the current record support a legal determination that the sale was voidable or whether
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this Court must make additional findings to determine whether the sale was voidable. Either way,
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the Court finds that the Ninth Circuit’s use of the conditional “may” in its order leaves it to this
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Court on remand to make the relevant factual findings and appropriate legal finding based upon the
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mandate from Shirehampton II. See United States v. Cote, 51 F.3d 178, 181, 182 (9th Cir. 1995)
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(noting that a district court must still consider and decide matters left open by the mandate).
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With this understanding of the mandate, the question for the Court, and the one raised by
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Chase in this motion, is whether the facts in the current record, this time read in the light most
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favorable to Shirehampton, support judgement for Chase as a matter of law.
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b. The Shadow Canyon Factors
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The Court now turns to the issue of voidability of the foreclosure sale. Under settled
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Nevada law, to set aside a foreclosure sale, the Court must find that the sale suffered from
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irregularities that rise to the level of fraud, unfairness, or oppression. Nationstar Mortg., LLC v.
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Saticoy Bay LLC Series 2227 Shadow Canyon (“Shadow Canyon”), 133 Nev. 740 (2017); Shadow
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Wood Homeowners Ass’n v. N.Y. Cmty. Bancorp. Inc. (“Shadow Wood”), 132 Nev. 49 (2016);
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Golden v. Tomiyasu, 79 Nev. 503 (1963). In Shadow Canyon, the Nevada Supreme Court
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explained that mere inadequacy of price is not in itself sufficient to set aside the foreclosure sale,
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but it should be considered together with any alleged irregularities in the sales process to determine
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whether the sale was affected by fraud, unfairness, or oppression.” 133 Nev. at 749. Under this
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framework a court must “closely scrutiniz[e] the circumstances of the sale” for evidence of fraud,
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unfairness, or oppression. Id. at 749-50.
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First, the Court addresses the inadequacy of the price based on the record. Shadow Wood
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indicated that a price less than 20 percent of the “fair market value” is indicative of gross
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inadequacy. 132 Nev. at 60. There, the court noted an appraisal and the original purchase price as
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comparators. Id. at 132, 132 n3 (citing Restatement (Third) of Prop.: Mortgages § 8.3 cmt. b (Am.
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L. Inst. 1997)). The Restatement (Third) of Property: Mortgages offers some additional guidance.
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First, “[f]or this purpose the latter means, not the fair "forced sale" value of the real estate, but after
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ample time to find a purchaser, between a vendor who is willing, but not compelled to sell, and a
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purchaser who is willing to buy, but not compelled to take a particular piece of real estate.”
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Restatement (Third) of Prop.: Mortgages § 8.3 cmt. b. Further, “[w]here the foreclosure is subject
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to senior liens, the amount of those liens must be subtracted from the unencumbered fair market
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value of the real estate in determining the fair market value of the title being transferred by the
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foreclosure sale.” Id.; see also Fair Market Value, BLACK’S LAW DICTIONARY (11th ed. 2019)
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(“The price that a seller is willing to accept and a buyer is willing to pay on the open market and
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in an arm's-length transaction; the point at which supply and demand intersect.”).
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Here, Chase presented expert evidence setting the fair market value of unencumbered title
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at the time of the HOA sale at $270,000. ECF 44-14.. Because Shirehampton has not presented
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evidence to the contrary or challenged this estimation, the Court takes the fair market value as
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established at $270,000 for purposes of this analysis. Shirehampton purchased the property for
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$9,700, or 3.5% of the fair market price. While there is no “hard-and-fast” rule for determining an
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inadequate price, such an inadequate price supports a finding for voiding the sale if there is any
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further evidence that “the sale was affected by fraud, unfairness, or oppression.” Shadow Canyon,
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133 Nev. at 748, 50.
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Second, the Court turns to evaluate the fraud, unfairness, or oppression in the record. The
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Shadow Canyon court provided some examples of “irregularities that may rise to the level of fraud,
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unfairness or oppression,” including an HOA’s failure to mail a deed of trust beneficiary the
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statutorily required notices or an HOA’s representation that the foreclosure sale would not
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extinguish the first deed of trust. 133 Nev. at 750 n.11 (collecting cases). Those two potential
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Shadow Canyon irregularities are present in this case.
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First, Red Rock failed to mail the statutorily required notices to MERS, Chase’s
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predecessor-in-interest as beneficiary. In U.S. Bank, the Nevada Supreme Court established that
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beneficiaries are entitled to such notice and that a failure to mail a deed of trust beneficiary the
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required notices “‘may rise to the level of fraud, unfairness, or oppression’ that will render a sale
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voidable. . . .” 135 Nev. at 206 (2019) (quoting Shadow Canyon, 133 Nev. at 749 n.11). A failure
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to provide the beneficiary notice of default, even if notice of sale is provided, can present a basis
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for equitable relief under Shadow Canyon. Id. (finding a “classic claim for relief under Shadow
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Canyon” even if notice of sale was received.). Such a shortcoming alone does not, however, require
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relief under Shadow Canyon. See West Sunset, 134 Nev. 352.
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Second, Red Rock’s letter to MetLife suggested that an eventual foreclosure would not
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extinguish the deed of trust which, in fact, it would under Nevada law. In the pertinent part, the
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Red Rock letter said: “The [HOA’s] Lien for Delinquent Assessments in Junior only to the Senior
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Lender/Mortgage holder. This Lien may affect your position.” ECF No. 28-8 (dated December 31,
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2009). In an unpublished opinion in Bank of N.Y. Mellon v. Fort Apache Homes, Inc., the Nevada
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Supreme Court found a similar failure to provide notice of sale could implicate Shadow Canyon
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and remanded to the trial court to determine whether that defect could warrant setting aside the
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sale. 133 Nev. 982 (2017).
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The core issue is whether either or both potential irregularities “establish that fraud,
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unfairness, or oppression affected the sale” in this case. Shadow Canyon, 133 Nev. at 741. “[T]here
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is no reason to invalidate a ‘legally made’ sale absent actual evidence of fraud, unfairness, or
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oppression. Id. (citing Golden, 79 Nev. at 514) (emphasis original). Closely scrutinizing the record
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in the light most favorable to Shirehampton, the Court finds that the HOA foreclosure sale was
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tainted with irregularities that affected the price. First, Red Rock’s failure to provide the
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beneficiary statutory notice is notice is a “classic claim” under Shadow Canyon. U.S. Bank, 135
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Nev. at 206. Second and further, the misdirecting language in the Red Rock letter to MetLife is
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not cured with the vague mention that “This Lien may affect your position.” Such misdirection has
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an obvious impact on the price at foreclosure—depriving the DOT-holder the opportunity to pay
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a relatively small amount to prevent the extinguishment of a far more sizable interest. Therefore,
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the Court finds that the foreclosure sale is voidable as a matter of law. Under Shadow Canyon the
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Court may set the sale aside if there is no competing equitable interest, such as a bona fide
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purchaser. 133 Nev. at741 (holding that “inadequacy of price” plus “some element of fraud,
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unfairness or oppression” that accounts for the price is "sufficient ground for setting aside a
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trustee's sale[.]”)
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c. Bona Fide Purchaser
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The Court must still decide if the determination of the adequacy of the foreclosure sale is
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impacted by the bona fide purchaser inquiry. Even though the foreclosure sale is voidable under
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Shadow Canyon, the Court must address whether Shirehampton is a bona fide purchaser.
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Under Nevada law, a bona fide purchaser has a superior equitable claim regarding a
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voidable sale. See U.S Bank, 135 Nev. at 205 (“A void sale, in contrast to a voidable sale, defeats
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the competing title of even a bona fide purchaser for value.”). The bona fide purchaser doctrine
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provides an equitable remedy to protect innocent purchasers from an otherwise defective sale; it
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does not provide an equitable basis to invalidate an otherwise valid sale. Wells Fargo Bank, N.A.
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v. Radecki, 134 Nev. 619 (2018). Shadow Wood explained that a bona fide purchaser is one who
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makes a purchase at a foreclosure sale, “for a valuable consideration and without notice of the
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prior equity, and without notice of facts which upon diligent inquiry would be indicated and from
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which notice would be imputed to him, if he failed to make such inquiry.” 132 Nev. at 64-65
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(quoting Bailey v. Butner, 64 Nev. 1 (1947)).
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First, it is undisputed that Shirehampton paid valuable consideration for the property. Id.
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at 65 (citing Fair v. Howard, 6 Nev. 305, 308 (1871) (“The question is not whether the
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consideration is adequate, but whether it is valuable.”).
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Chase argues that the deed of trust was recorded four years prior to the foreclosure sale and
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that, despite this notice, Shirehampton failed to inquire as to whether the title would be encumbered
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following that foreclosure sale. Shirehampton argues that every recorded document indicated that
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the HOA was foreclosing on a prior lien that would extinguish the deed of trust and provides an
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affidavit supporting that Shirehampton held that position at the time of the foreclosure sale.
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The Court finds that Shirehampton had knowledge of the defects in the foreclosure sale
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and that exercising reasonable care would have put Shirehampton on notice of the defects.
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Establishing constructive notice is sufficient for purposes of defeating a claim to be a bona fide
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purchaser. See id. Shirehampton is a sophisticated real estate investor and could have reasonably
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determined that its purchase was at risk. While the Nevada Supreme Court had not clearly
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established whether an HOA foreclosure sale like the one here could extinguish a deed of trust,
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SFR Invs. Pool 1, 130 Nev. at 140, Shirehampton was certainly aware of the possibility. “Where
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the complaining party has access to all the facts surrounding the questioned transaction and merely
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makes a mistake as to the legal consequences of his act, equity should normally not interfere,
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especially where the rights of third parties might be prejudiced thereby.” Shadow Wood, 132 Nev.
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at 66. Therefore, the Court finds that, as a matter of law, Shirehampton is not a bona fide
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purchaser. The Court further finds that the foreclosure sale is therefore voidable and taken
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subject to Chase's deed of trust.
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V.
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CONCLUSION
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For the reasons above,
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IT IS ORDERED that Defendant-Counter Claimant JPMorgan Chase Bank, National
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Association’s Post-Remand Motion for Summary Judgment (ECF No. 82) is GRANTED.
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The Court finds that the foreclosure sale in this case was voidable. Shirehampton Drive Trust
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acquired the Property subject to the lien of the Internal Revenues Services and the deed of trust
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in favor of Chase Bank.
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///
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///
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///
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IT IS FURTHER ORDERED that Defendant shall submit a proposed order for filing
with state officials by October 13, 2023.
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DATED: May 6, 2023.
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__________________________________
RICHARD F. BOULWARE, II
UNITED STATES DISTRICT JUDGE
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