Bank of N.Y. Mellon v. Christopher Cmtys. at S. Highlands Golf Club Homeowners Ass'n

Citation: 321 F. Supp. 3d 1212Docket: Case No. 2:17–CV–1033 JCM (GWF)

Court: District Court, D. Nevada; June 27, 2018; Federal District Court

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Plaintiff Bank of New York Mellon (BNYM) filed a motion for summary judgment, with responses submitted by defendants Kupperlin Law Group and the Lahrs. Kupperlin also filed a summary judgment motion, and the Lahrs sought to dismiss the case. The dispute centers on a real property located at 11966 Port Labelle Drive, Las Vegas, Nevada, purchased by Michael and Julie Frye in August 2005, financed through a $1,000,000 loan secured by a deed of trust with MERS as the beneficiary.

Following the Fryes' failure to pay assessments to the HOA, Red Rock Financial Services (RRFS) recorded a delinquency notice and later a notice of default. MERS was informed of the Fryes' delinquency, and RRFS described the HOA's lien as junior only to the senior lender. MERS assigned its beneficial interest in the deed of trust to BNYM in September 2011.

Prior to September 2012, First 100 entered into an agreement with the HOA to purchase the Fryes' delinquency, allowing them to collect on the debt and foreclose on the property. Kupperlin, acting on behalf of the HOA, recorded a notice of foreclosure sale in September 2012 and conducted the sale, with First 100 as the sole bidder, purchasing the property for $151. The property was transferred to the Lahrs Family Trust in February 2013.

BNYM's complaint includes claims for quiet title/declaratory judgment, breach of NRS 116.1113, wrongful foreclosure, injunctive relief, and deceptive trade practices against the HOA and Kupperlin.

On June 30, 2017, Kupperlin filed a counterclaim against the plaintiff's attorney, Natalie Winslow. The court subsequently dismissed both the plaintiff's claim for injunctive relief and Kupperlin's counterclaim on March 23, 2018. The document outlines the legal standards for dismissing claims under Federal Rule of Civil Procedure 12(b)(6) due to failure to state a claim, emphasizing the need for a complaint to provide a clear statement of the claim with sufficient factual allegations to support a plausible entitlement to relief. The Supreme Court's decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal establish that complaints must move beyond mere labels and conclusions, requiring factual matter that allows reasonable inferences of liability. The Ninth Circuit's ruling in Starr v. Baca further clarifies that allegations must detail underlying facts to provide fair notice and enable effective defense. Additionally, the document addresses summary judgment under Federal Rule of Civil Procedure 56(a), which permits judgment when there are no genuine disputes over material facts. Summary judgment seeks to eliminate unsupported claims, and in assessing it, courts must favor the non-moving party but require specific facts to demonstrate genuine issues for trial. A burden-shifting analysis is applied in determining summary judgment.

The moving party seeking summary judgment must meet its initial burden by providing evidence sufficient to warrant a directed verdict if uncontroverted at trial. If the moving party will bear the burden of proof at trial, it must establish the absence of genuine issues of material fact. Conversely, if the nonmoving party bears the burden of proof, the moving party can meet its burden by either negating an essential element of the nonmoving party's claim or demonstrating that the nonmoving party has insufficient evidence to establish an essential element of its case. Failure to meet this initial burden results in denial of summary judgment, without the need to consider the nonmoving party's evidence.

If the moving party satisfies its burden, the opposing party must then show that a genuine issue of material fact exists, which does not require conclusively establishing a material fact in their favor. The opposing party must provide specific facts through competent evidence rather than relying on conclusory allegations. The court's role at this stage is not to weigh evidence but to determine the existence of genuine issues for trial, presuming the nonmoving party’s evidence is credible and drawing all justifiable inferences in their favor. However, if the opposing evidence is merely colorable or lacks significant probative value, summary judgment may still be granted.

In the context of the plaintiff's motion for summary judgment, the plaintiff argues against the constitutionality of NRS 116.3116 and cites the Ninth Circuit's decision in Bourne Valley, asserting that the HOA's foreclosure was commercially unreasonable and that the lien could not be foreclosed due to the separation of the lien from the payment right. The court will first address the plaintiff's claim of commercial unreasonableness, as its resolution will determine whether to quiet title in favor of the plaintiff. Under Nevada law, any person can bring an action to quiet title against another who claims an interest in real property, and the plaintiff must prove superiority of title to succeed in such an action.

To succeed in a quiet title action, the plaintiff must demonstrate that their claim to the property is superior to all others, as established in Breliant v. Preferred Equities Corp. The burden of proof is on the plaintiff to prove good title. Under NRS 116.3116(1), homeowners' associations (HOAs) have a lien on residences for unpaid assessments and fines, with NRS 116.3116(2) prioritizing this lien over other liens, except for certain conditions, notably first security interests recorded prior to the delinquent assessment (NRS 116.3116(2)(b)). The Nevada Supreme Court's decision in SFR Investments Pool 1 v. U.S. Bank distinguishes between a superpriority lien, covering the last nine months of unpaid dues, and a subpriority lien, with the superpriority lien having precedence over first deeds of trust. NRS 116.3116 allows HOAs to enforce this lien through nonjudicial foreclosure, which can extinguish a first deed of trust if done correctly. Courts have imposed a commercial reasonableness standard on HOA foreclosure sales, as highlighted in Shadow Wood HOA v. N.Y. Cmty. Bancorp, where a foreclosure sale can be set aside if there is a "grossly inadequate" sales price combined with evidence of fraud, unfairness, or oppression. Simply showing inadequate price is insufficient; additional proof of wrongful conduct is required. While some cases reference a 20% threshold for gross inadequacy, the Long test prevails in Nevada, necessitating the demonstration of fraud, unfairness, or oppression alongside price inadequacy to invalidate a foreclosure sale.

Nevada lacks a clear definition of "unfairness" in assessing commercial reasonableness. Relevant case law indicates that all aspects of a disposition—method, manner, time, place, and terms—must be commercially reasonable, including publicity quality, auction price, and bidder participation. In ZYZZX2 v. Dizon, the court found a foreclosure sale commercially unreasonable due to misleading communications from the HOA and a significantly low sale price, leading to the sale being set aside.

In the current case, First 100 purportedly acquired the right to foreclose from the HOA. Kupperlin, as First 100's agent, orchestrated the foreclosure where First 100 was the sole bidder, with a bid of $99 against a lien interest of $22,346.67. Following the sale, First 100 transferred the property interest for over $500,000. Additionally, misleading notices were sent to the plaintiff's predecessor, suggesting the HOA's lien was junior to the first deed of trust, and the CC&Rs included a mortgage protection clause.

The plaintiff also contends that the purchase agreement between First 100 and the HOA rendered the lien interest unenforceable, drawing parallels to Edelstein v. Bank of N.Y. Mellon, where the separation of a deed of trust from its note made foreclosure impossible. The court acknowledges that Nevada law supports applying the rationale from Edelstein to HOA foreclosures, as the agreement between First 100 and the HOA divided the lien from the right to collect on the unpaid account.

The court determined that First 100, while entitled to repayment of the Fryes' HOA delinquency, lacked the right to foreclose on the property due to the absence of a lien interest, as established in Edelstein (286 P.3d at 254). First 100's ability to conduct a foreclosure sale and acquire the property at a significantly reduced price was deemed commercially unreasonable, particularly given that the HOA trustee assured the bank that the foreclosure would not affect the first deed of trust. This situation parallels precedents where misleading statements and drastically low sale prices raised doubts about commercial reasonableness. The purchase agreement between First 100 and the HOA also rendered the lien unenforceable, ensuring that the plaintiff's first deed of trust remained intact despite the foreclosure. 

As a result, the court granted the plaintiff's motion for summary judgment on their quiet title claim and denied the Lahrs' motion to dismiss, which challenged the validity of the plaintiff's complaint. Kupperlin's motion for summary judgment, which sought to claim that First 100 acquired an interest in the property through the foreclosure sale, was also denied. The court ordered the plaintiff to submit a proposed judgment within thirty days. The order notes discrepancies in the recorded sale price compared to the actual bid at the foreclosure sale, highlighting further concerns regarding the commercial reasonableness of the transaction, especially given the significant undervaluation relative to the property's fair market value.