Green Tree Servicing LLC v. Rainbow Bend Homeowners Association et al

Filing 68

ORDER that Plaintiff Green Tree's Motion for Summary Judgment ECF No. 58 is granted. The Court finds that the HOA foreclosure sale did not extinguish Plaintiff's DOT, which continues to encumber the Property. The Clerk is instructed to enter judgment in favor of Green Tree on its quiet title claim and close this case. Signed by Judge Miranda M. Du on 09/20/2017. (Copies have been distributed pursuant to the NEF - KW)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 DISTRICT OF NEVADA 10 *** 11 12 13 GREEN TREE SERVICING LLC; FEDERAL NATIONAL MORTGAGE ASSOCIATION; and FEDERAL HOUSING FINANCE AGENCY, as Conservator of Federal National Mortgage Association, Case No. 3:15-cv-00297-MMD-WGC ORDER (Pl.’s Renewed Motion for Summary Judgment – ECF No. 58) Plaintiffs, 14 v. 15 16 RAINBOW BEND HOMEOWNERS ASSOCIATION; DANIEL HALL; DIANA HALL, 17 Defendants. 18 19 I. SUMMARY 20 This case concerns a homeowner association’s (“HOA”) nonjudicial foreclosure 21 sale pursuant to NRS § 116.3116 et seq. Before the Court is Plaintiff Green Tree 22 Servicing LLC’s (“Green Tree’s”) Renewed Motion for Summary Judgment (“Motion”). 23 The Court has reviewed the Defendants’ response (ECF No. 59) and Plaintiff Green 24 Tree’s reply (ECF No. 64). The Court also heard oral argument on the pending Motion 25 on August 23, 2017.1 (ECF No. 67.) Plaintiff’s Motion is granted for the reasons 26 discussed below. 27 28 1Federal National Mortgage Association did not seek summary judgment but participated at the hearing. 1 II. BACKGROUND 2 The facts in this case are not at issue. 3 Shanna Carpenter purchased real property (“Property”) within Defendant Rainbow 4 Bend Homeowners Association (“HOA”) in February 2004. (ECF No. 59 at 4.) A month 5 later, Ms. Carpenter borrowed $106,640.00 from the First National Bank of Nevada 6 (“Loan”). (Id.) She executed a promissory note (“Note”) for that amount which was 7 secured by a deed of trust (“DOT”) on the Property. (Id.) The Note and DOT were 8 assigned several times, but the parties agree that Green Tree is the current beneficiary 9 under the DOT and servicer of the Loan. (Id. at 6-7; ECF No. 58 at 2.) 10 Ms. Carpenter failed to pay HOA assessments, and the HOA eventually 11 foreclosed on the Property pursuant to NRS § 116.3116 et seq. in July 2013. (ECF No. 12 59 at 5.) The HOA purchased the property at the sale for $837.00. (Id.; ECF No. 59-9 at 13 2.) Defendants Daniel and Diana Hall (“Halls”) purchased the Property from the HOA for 14 $12,500.00 about a year and a half later, in December 2014. (ECF No. 59 at 8; ECF 15 No. 59-18 at 4.) Plaintiffs filed suit seeking to quiet title and obtain declaratory relief. 16 (ECF No. 13 at 8-12.) 17 III. LEGAL STANDARD 18 Summary judgment is appropriate when the pleadings, the discovery and 19 disclosure materials on file, and any affidavits “show that there is no genuine issue as to 20 any material fact and that the moving party is entitled to a judgment as a matter of law.” 21 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). An issue is genuine “if the evidence 22 is such that a reasonable jury could return a verdict for the nonmoving party,” Anderson 23 v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986), and a dispute is material if it could 24 affect the outcome of the suit under the governing law. Id. 25 Summary judgment is not appropriate when “reasonable minds could differ as to 26 the import of the evidence.” See id. at 250-51. “The amount of evidence necessary to 27 raise a genuine issue of material fact is [that which is] enough ‘to require a jury or judge 28 to resolve the parties’ differing versions of the truth at trial.’” Aydin Corp. v. Loral Corp., 2 1 718 F.2d 897, 902 (9th Cir. 1983) (quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 2 391 U.S. 253, 288-89 (1968)). Decisions granting or denying summary judgment are 3 made in light of the purpose of summary judgment: “to avoid unnecessary trials when 4 there is no dispute as to the facts before the court.” Nw. Motorcycle Ass’n v. U.S. Dep’t 5 of Agric., 18 F.3d 1468, 1471 (9th Cir. 1994). 6 The moving party bears the burden of showing that there are no genuine issues 7 of material fact. Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). Once 8 the moving party satisfies the requirements of Rule 56, the burden shifts to the party 9 resisting the motion to “set forth specific facts showing that there is a genuine issue for 10 trial.” Anderson, 477 U.S. at 256. In evaluating a summary judgment motion, a court 11 views all facts and draws all inferences in the light most favorable to the nonmoving 12 party. In re Slatkin, 525 F.3d 805, 810 (9th Cir. 2008). If a party relies on an affidavit or 13 declaration to support or oppose a motion, it “must be made on personal knowledge, set 14 out facts that would be admissible in evidence, and show that the affiant or declarant is 15 competent to testify on the matters stated.” Fed. R. Civ. P. 56(c)(4). The nonmoving 16 party “may not rely on denials in the pleadings but must produce specific evidence, 17 through affidavits or admissible discovery material, to show that the dispute exists,” Bhan 18 v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991), and “must do more than 19 simply show that there is some metaphysical doubt as to the material facts.” Orr v. Bank 20 of Am., 285 F.3d 764, 783 (9th Cir. 2002) (quoting Matsushita Elec. Indus. Co. v. Zenith 21 Radio Corp., 475 U.S. 574, 586 (1986)). “The mere existence of a scintilla of evidence in 22 support of the plaintiff’s position will be insufficient . . . .” Anderson, 477 U.S. at 252. 23 IV. DISCUSSION 24 Plaintiff Green Tree moves for summary judgment on its first and third claims. 25 This Court will address the first claim because the third claim was dismissed in a prior 26 order. (ECF No. 47 at 7.) 27 /// 28 /// 3 1 A. Applicability of Bourne Valley 2 Plaintiff argues that the Ninth Circuit Court of Appeals’ decision in Bourne Valley 3 Court Tr. v. Wells Fargo Bank, NA, 832 F.3d 1154 (9th Cir. 2016), cert. denied, 137 S. 4 Ct. 2296 (2017), requires this Court to declare that the HOA foreclosure sale did not 5 extinguish Plaintiff’s deed of trust (“DOT”) because the sale was conducted pursuant to 6 an unconstitutional statute. (ECF No. 58 at 3.) Defendants respond that the opt-in notice 7 scheme remains constitutional (ECF No. 59 at 10-14), and that the facts of this case are 8 materially different from those in Bourne Valley (id. at 15-16). 9 In Bourne Valley, the Ninth Circuit held that the opt-in notice scheme established 10 in NRS § 116.3116 et seq.2 (“Statute”) is facially unconstitutional because it requires a 11 lender with a first position DOT to affirmatively request notice of an HOA’s intent to 12 foreclose, which the court found to be a violation of the lender’s due process rights. 832 13 F.3d at 1156. The Ninth Circuit made this decision in light of the Nevada Supreme 14 Court’s decision in SFR Investments Pool 1 v. U.S. Bank, 334 P.3d 408, 412 (Nev. 15 2014), in which the state supreme court interpreted the statute to give an HOA a 16 “superpriority” lien on a homeowner’s property for up to nine months of unpaid HOA 17 dues that, when foreclosed upon, extinguished all junior interests in the property. See 18 Bourne Valley, 832 F.3d at 1156-57. Thus, the Ninth Circuit found that enactment of the 19 statute’s opt-in notice scheme “unconstitutionally degraded [the first position lienholder’s] 20 interest” and that but for this scheme the first position lienholder’s rights in the property 21 would not be extinguished. Id. at 1160. 22 Defendants first contend that the Statute remains constitutional despite the Ninth 23 Circuit’s holding in Bourne Valley, basing their argument on two decisions by the Nevada 24 Supreme Court that directly contradict Bourne Valley. (ECF No. 59 at 10-14.) The first 25 decision, decided before Bourne Valley, is SFR Investments Pool 1 v. U.S. Bank, 334 26 /// 27 Bourne Valley court referred to NRS § 116.3116 et seq. as “the statute.” 832 F.3d at 1156. Sections 116.3116 through 116.3117 create the framework by which HOAs may foreclose on their liens through a nonjudicial sale. 28 2The 4 1 P.3d 408, 412 (Nev. 2014). There, the Nevada Supreme Court rejected a mortgage 2 lender’s due process challenge to the Statute. Id. at 418. The second decision, decided 3 after Bourne Valley, is Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home 4 Mortg., a Division of Wells Fargo Bank, N.A., 388 P.3d 970 (Nev. 2017). There, the 5 Nevada Supreme Court held that the foreclosure procedures under the Statute do not 6 violate first position lienholders’ due process rights under both the Nevada and United 7 States Constitutions. Id. at 972-74. 8 Defendants’ first argument fails because the Ninth Circuit found that the Statute’s 9 opt-in notice scheme was unconstitutional under the federal constitution. Bourne Valley, 10 832 F.3d at 1157. This Court is not bound by the Nevada Supreme Court’s holdings to 11 the contrary. See Watson v. Estelle, 886 F.2d 1093, 1095 (9th Cir. 1989) (stating that the 12 decision of a state supreme court construing the United States Constitution is not 13 binding on federal courts). Therefore, Bourne Valley applies to this Court’s determination 14 of whether the HOA’s foreclosure sale extinguished Plaintiff’s DOT. 15 Defendants’ second argument fails because factual differences are immaterial to 16 the question of whether the opt-in notice scheme is constitutional. The Ninth Circuit held 17 that the opt-in notice scheme was unconstitutional on its face, i.e., “in each and every 18 application.” Bank of Am., N.A. v. Regency Vill. Owner’s Ass’n, Inc., No. 216-cv-00496- 19 GMN-CWH, 2017 WL 3567520, at *3 (D. Nev. Aug. 17, 2017). “[N]o conceivable set of 20 circumstances exists under which the provisions would be valid. The factual 21 particularities surrounding the foreclosure notices in this case—which would be of 22 paramount importance in an as-applied challenge—cannot save the facially 23 unconstitutional statutory provisions.” Id. 24 B. Equitable Relief 25 Plaintiff requests that this Court hold that the HOA foreclosure sale did not 26 extinguish its DOT through its claim for quiet title under NRS § 40.010. (ECF No. 58 at 27 6.) “At common law, courts possessed inherent equitable power to consider quiet title 28 actions, a power that required no statutory authority.” Shadow Wood Homeowners 5 1 Ass’n, Inc. v. N.Y. Cmty. Bancorp, Inc., 366 P.3d 1105, 1111 (Nev. 2016) (internal 2 citation omitted); see also Humble Oil & Ref. Co. v. Sun Oil Co., 191 F.2d 705, 718 (5th 3 Cir. 1951) (An action for quiet title “is a purely equitable proceeding.”). Thus, equitable 4 relief may be granted in defective HOA lien foreclosure sales. Shadow Wood, 366 P.3d 5 at 1107 (“We . . . reaffirm that, in an appropriate case, a court can grant equitable relief 6 from a defective HOA lien foreclosure sale.”). Equitable relief powers are broad. Brown 7 v. Plata, 563 U.S. 493, 538 (2011) (“the scope of a district court's equitable powers . . . is 8 broad, for breadth and flexibility are inherent in equitable remedies.”) (internal quotation 9 marks and citation omitted). A court granting equitable relief should weigh the equities 10 involved, including equity to the public. U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 11 513 U.S. 18, 26 (1994) (“As always when federal courts contemplate equitable relief, our 12 holding must also take account of the public interest.”). 13 The Court finds that the most equitable remedy under the circumstances here is 14 to declare that Plaintiff’s DOT still encumbers the Property, a holding consistent with 15 Plaintiff’s requested relief and the ruling in Bourne Valley. This remedy is equitable with 16 respect to the parties in this case as well as to the general public. As to Plaintiff, this 17 declaration remedies the injury it suffered as a result of the unconstitutional opt-in notice 18 scheme, namely the extinguishment of its lien on the Property. As to the HOA, this 19 remedy allows the sale to remain intact, thereby ensuring that the delinquent 20 assessments for which the HOA foreclosed upon the Property remain satisfied.3 As to 21 the Halls, this result is equitable because the purchase of the Property entailed a risk 22 that the statutory framework that enabled the HOA to sell the Property at such a 23 discounted price would be found to be unconstitutional (as litigation challenging the 24 constitutionality of the opt-in notice scheme in federal and state court had already 25 begun). As to the general public, this remedy is equitable because it preserves market 26 27 28 3If the Court were to invalidate the sale, the HOA would face the additional difficulty and expense of tracking down Ms. Carpenter. Moreover, the HOA would have to foreclose upon the Property once again in order to satisfy the nine months of delinquent assessments in the event Ms. Carpenter declined to cure the default. 6 1 stability. Alternatives such as setting aside the foreclosure sale would create chaos, as 2 both parties agreed at the hearing on August 23, 2017. Therefore, the Court resolves Plaintiff’s quiet title claim in favor of Plaintiff. This 3 4 resolution moots Plaintiff’s second claim. (ECF No. 58 at 5.) 5 V. CONCLUSION 6 The Court notes that the parties made several arguments and cited to several 7 cases not discussed above. The Court has reviewed these arguments and cases and 8 determines that they do not warrant discussion or reconsideration as they do not affect 9 the outcome of Plaintiff’s Motion. 10 It is therefore ordered that Plaintiff Green Tree’s Motion for Summary Judgment 11 (ECF No. 58) is granted. The Court finds that the HOA foreclosure sale did not 12 extinguish Plaintiff’s DOT, which continues to encumber the Property. 13 14 15 The Clerk is instructed to enter judgment in favor of Green Tree on its quiet title claim and close this case. DATED THIS 20th day of September 2017. 16 17 18 MIRANDA M. DU UNITED STATES DISTRICT JUDGE 19 20 21 22 23 24 25 26 27 28 7

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