Court: District Court, D. Nevada; October 29, 2018; Federal District Court
Defendant SFR Investments Pool 1, LLC has filed a motion for summary judgment, while plaintiff Wells Fargo Bank, N.A. has also moved for summary judgment. Additionally, Transunion Settlement Solutions seeks to set aside an entry of default, with no response from Wells Fargo. The case involves a property dispute over real estate located at 1741 Choice Hills Drive, Henderson, Nevada. Theresa Wingender purchased the property in 2001, financing it through a $562,500 loan from World Savings Bank, FSB, secured by a deed of trust. WSB later changed its name to Wachovia Mortgage, FSB, and subsequently merged into Wells Fargo, which became the beneficiary of the deed of trust.
In 2011, Foothills at MacDonald Ranch Master Association recorded a lien against the property for unpaid assessments totaling $19,454. A notice of default was recorded in 2012, with a stated amount due of $22,129.69. Notices of default and foreclosure were sent to WSB at specified addresses, with Wells Fargo confirming receipt of one notice but denying receipt of the foreclosure notice. The property was sold at a foreclosure sale to SFR for $56,000 in 2013, and SFR recorded the deed of foreclosure. Wells Fargo filed a complaint in 2016 alleging six causes of action, including wrongful foreclosure and seeking declaratory relief. The cross-motions for summary judgment seek a court determination on whether the foreclosure sale extinguished the deed of trust.
Summary judgment is permitted under the Federal Rules of Civil Procedure when the evidence on file demonstrates no genuine dispute over material facts, allowing the moving party to obtain judgment as a matter of law. The primary aim is to eliminate unsupported claims. Disputed factual issues are viewed favorably for the nonmoving party, which must present specific facts indicating a genuine issue for trial. A burden-shifting analysis is employed: if the moving party bears the burden of proof at trial, it must provide evidence sufficient for a directed verdict to meet its initial burden. Conversely, if the nonmoving party has the burden of proof, the moving party can either negate essential elements of the nonmoving party's case or show the latter's failure to establish an essential element. Failure of the moving party to meet its initial burden results in denial of summary judgment without considering the nonmoving party’s evidence. If the initial burden is satisfied, the burden shifts to the opposing party to demonstrate a genuine issue of material fact, which does not need to be conclusively in their favor but should show that a jury or judge must resolve differing versions of the truth. The nonmoving party cannot rely on unsupported assertions but must provide specific facts and competent evidence. The court's role is not to weigh evidence but to ascertain if a genuine dispute exists. Credibility of the nonmoving party's evidence is assumed, with all reasonable inferences drawn in their favor; however, if the evidence is minimal or non-probative, summary judgment may still be granted.
In the current case, the court will set aside the default against Transunion, allowing resolution based on merits, and will grant summary judgment in favor of SFR, ruling that Chapter 116 is constitutional and that Wells Fargo had sufficient notice of the foreclosure sale.
Entry of default under Federal Rule of Civil Procedure 55(c) allows a court to set aside a default for good cause, considering factors such as culpable conduct, the existence of a meritorious defense, and potential prejudice to the opposing party. A default judgment is seen as a severe measure, and cases should ideally be resolved on their merits. The court’s discretion is broader in setting aside an entry of default compared to a default judgment. In this instance, Transunion was unaware of the action due to third-party mistakes, has no property interest, and there is minimal risk of prejudice since Wells Fargo did not oppose the motion. Consequently, the court grants Transunion's motion to set aside the entry of default.
Regarding the cross motions for summary judgment, SFR and Wells Fargo dispute the encumbrance of the property by the deed of trust. The court rules in favor of SFR, granting its motion for summary judgment while denying Wells Fargo's due to insufficient grounds to challenge the foreclosure sale. Under Nevada law, a quiet title action requires the plaintiff to prove superior title. Chapter 116 of the Nevada Revised Statutes allows homeowners' associations (HOAs) to place liens for unpaid assessments, which generally have priority over other encumbrances, except for certain first security interests. The Nevada Supreme Court clarified that HOA liens consist of a superpriority portion, which includes the last nine months of unpaid dues, and a subpriority portion, with the superpriority portion taking precedence over first deeds of trust.
Under Chapter 116, homeowners associations (HOAs) are empowered to enforce superpriority liens through nonjudicial foreclosure sales, which can extinguish first deeds of trust. NRS 116.3116(2) establishes the superpriority lien, and NRS 116.31162(1) allows the HOA to foreclose its lien by sale, provided it follows statutory notice and timing requirements. NRS 116.31166(1) outlines that certain recitals in the foreclosure deed serve as conclusive proof of compliance with statutory prerequisites, including the default, notice of delinquent assessment, and the notice of sale.
Although these recitals are conclusive, courts retain the authority to review quiet title actions even when an HOA's foreclosure deed contains these recitals. The parties presented documented compliance with the foreclosure process, affirming the validity of the sale under NRS 116.31162 through NRS 116.31164. However, the mere existence of conclusive recitals does not guarantee the buyer's success in a quiet title claim. The court must examine whether the plaintiff has sufficient grounds to set aside the foreclosure.
Wells Fargo argues against the foreclosure's validity on two grounds: the statute under which the HOA foreclosed is facially unconstitutional, and inadequate notice was provided to Wells Fargo. It cites Bourne Valley, where the Ninth Circuit found Chapter 116 unconstitutional for failing to require notice to holders of subordinate security interests. This ruling was based on the interpretation that NRS 116.31168(1) did not reference NRS 107.090, which mandates such notice, and the court declined to incorporate the latter to avoid rendering the former superfluous.
The Nevada Supreme Court has interpreted Chapter 116, specifically NRS 116.31168(1), affirming that it incorporates NRS 107.090 and requires notice to subordinate interest holders, countering the Ninth Circuit's Bourne Valley decision. This interpretation does not violate the Fourteenth Amendment, as both the Ninth Circuit and the Nevada Supreme Court recognize that state courts are the final interpreters of state statutes. Consequently, the court will uphold the Nevada Supreme Court's ruling, validating Foothills' foreclosure as constitutional.
Wells Fargo contends that Foothills failed to provide adequate notice of the foreclosure sale, claiming a violation of due process under the Fifth and Fourteenth Amendments. The court disagrees, stating that a first deed of trust holder must demonstrate a lack of reasonable notice to assert a constitutional grievance. To succeed in a procedural due process claim, a claimant must show deprivation of a constitutional property interest and inadequate procedural protections. The court clarifies that due process does not necessitate actual notice but requires notice that is reasonably calculated to inform interested parties of actions affecting their property rights.
In this case, Foothills mailed multiple notices of default and foreclosure sale to Wells Fargo, which acknowledged receipt of the notice of default, indicating that it was adequately informed of the proceedings. Therefore, Wells Fargo's due process argument is rejected, and it is established that a party not prejudiced by a statute's operation cannot challenge its validity.
SFR is granted judgment against Wells Fargo as a matter of law, with SFR's motion for summary judgment (ECF No. 67) being approved and Wells Fargo's motion for summary judgment (ECF No. 68) denied. Additionally, Transunion's motion to set aside entry of default (ECF No. 74) is granted. The clerk is instructed to enter judgment and close the case. The ruling references a substantial revision of Chapter 116 by the 2015 Legislature, but notes that the applicable statutes are those in effect from 2011-2013, pertinent to the events leading to this litigation. The statutes indicate that a deed with specific recitals is conclusive against the former owner and their heirs, and that the purchaser is discharged from ensuring the correct use of the purchase money. Furthermore, the sale of a unit under specified NRS provisions transfers ownership without equity or right of redemption.
