Bank of America, N.A. v. Premier One Holdings, Inc.

Opinion

1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 BANK OF AMERICA, N.A., Case No.: 2:15-cv-01731-APG-BNW

4 Plaintiff Order (1) Granting Bank of America’s Motion for Summary Judgment, 5 v. (2) Denying Premier’s Motion for Summary Judgment, (3) Dismissing as 6 PREMIER ONE HOLDINGS, INC., et al., Moot Bank of America’s Claims Against Cactus, (4) Denying as Moot Cactus’s 7 Defendants Motion for Summary Judgment, and (5) Setting Deadline for Further Action 8 [ECF Nos. 69, 71, 72] 9

10 Plaintiff Bank of America, N.A. sues to determine whether a deed of trust still encumbers 11 property located at 10609 Cave Ridge Street in Las Vegas following a non-judicial foreclosure 12 sale conducted by a homeowners association (HOA), defendant Cactus Creek at Mountain’s 13 Edge Homeowners’ Association, Inc. (Cactus). Bank of America seeks a declaration that the 14 HOA sale did not extinguish the deed of trust and it asserts alternative damages claims against 15 Cactus. Cactus filed a third-party complaint against its foreclosure agent, Nevada Association 16 Services, Inc. (NAS), for indemnity, contribution, and breach of contract. NAS counterclaimed 17 against Cactus for breach of contract and breach of the implied covenant of good faith and fair 18 dealing. 19 Defendant Premier One Holdings, Inc. (Premier) purchased the property at the HOA 20 foreclosure sale. Premier executed a short form deed of trust with assignment of rents in favor of 21 defendant THL Family Investment LLC (THL). THL assigned the deed of trust to Acadia 22 Investment, who later assigned it to Wei Wei Chen. Premier counterclaims to quiet title and for 23 cancellation of the deed of trust. 1 Bank of America moves for summary judgment, arguing the sale was not properly 2 conducted because NAS did not send notice of the sale to Mortgage Electronic Registration 3 Systems, Inc. (MERS), the former homeowner satisfied the superpriority lien, NAS would have 4 rejected tender so Bank of America was excused from making a tender attempt, and the sale 5 should be equitably set aside. Premier and THL move for summary judgment, arguing the sale

6 was properly conducted, there is no basis to set aside the sale, and equity favors them as bona 7 fide purchasers over Bank of America, which took no action to protect the deed of trust. Cactus 8 moves for summary judgment, arguing it complied with Nevada law in conducting the sale and 9 there is no basis to set aside the sale. Cactus also raises various arguments for why it is entitled 10 to judgment on Bank of America’s damages claims. 11 The parties are familiar with the facts, and I will not repeat them here except where 12 necessary to resolve the motions. I grant Bank of America’s motion and deny Premier’s motion 13 because the former homeowner paid the superpriority amount prior to the HOA sale. Because 14 the HOA sale did not extinguish the deed of trust, I dismiss as moot Bank of America’s damages

15 claims against Cactus and deny as moot Cactus’s motion for summary judgment. Finally, I set a 16 deadline for the parties to take action regarding the remaining claims and parties. 17 I. ANALYSIS 18 Summary judgment is appropriate if the movant shows “there is no genuine dispute as to 19 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 20 56(a), (c). A fact is material if it “might affect the outcome of the suit under the governing law.” 21 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine if “the evidence 22 is such that a reasonable jury could return a verdict for the nonmoving party.” Id. 23 / / / / 1 The party seeking summary judgment bears the initial burden of informing the court of 2 the basis for its motion and identifying those portions of the record that demonstrate the absence 3 of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The 4 burden then shifts to the non-moving party to set forth specific facts demonstrating there is a 5 genuine issue of material fact for trial. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531

6 (9th Cir. 2000); Sonner v. Schwabe N. Am., Inc., 911 F.3d 989, 992 (9th Cir. 2018) (“To defeat 7 summary judgment, the nonmoving party must produce evidence of a genuine dispute of material 8 fact that could satisfy its burden at trial.”). I view the evidence and reasonable inferences in the 9 light most favorable to the non-moving party. James River Ins. Co. v. Hebert Schenk, P.C., 523 10 F.3d 915, 920 (9th Cir. 2008). 11 A homeowner’s payments can cure the superpriority default. 9352 Cranesbill Tr. v. Wells 12 Fargo Bank, N.A., 459 P.3d 227, 230 (Nev. 2020). In general, “[w]hen a debtor partially 13 satisfies a judgment, that debtor has the right to make an appropriation of such payment to the 14 particular obligations outstanding.” Id. (quotation omitted). “The debtor must direct that

15 appropriation at the time the payment is made.” Id. (quotation omitted). If the debtor does not 16 direct how to apply the payment, then the creditor may decide how to allocate it. Id. “If neither 17 the debtor nor the creditor makes a specific application of the payment, then it falls to the court 18 to determine how to apply the payment” by reference to “the basic principles of justice and 19 equity so that a fair result can be achieved.” Id. (quotation omitted). 20 The monthly assessment amount was $30. ECF No. 72-7 at 8. Cactus’s ledger shows 21 four months of delinquencies at the time the notice of delinquent assessment lien was recorded. 22 ECF Nos. 72-5; 72-7 at 8. There is no evidence of nuisance abatement or maintenance charges. 23 The superpriority amount thus was $120, and at most was $270. 1 On August 6, 2009, a $100 payment was made to Cactus through NAS. ECF No. 72-7 at 2 16-19. On January 11, 2010, another payment in the amount of $50 was made. Id. at 34. NAS 3 sent $25 of this payment to Cactus. Id. at 35-37. In June 2010, another $100 payment was made. 4 Id. at 38. NAS sent $50 of this payment to Cactus. Id. at 39-41. In January 2013, there was 5 another $250 payment. Id. at 55. NAS forwarded $150 of this payment to Cactus. Id. at 56, 61-

6 62. In March 2013, another $382 payment was made. Id. at 63. NAS sent $156.33 of this 7 payment to Cactus. Id. at 64, 69-70. In total, $481.33 in homeowner payments were sent to 8 Cactus. If this amount is applied to the superpriority amount, the superpriority lien was satisfied 9 prior to the sale and the deed of trust was not extinguished. 10 There is no evidence that the debtor directed how any of these payments were to be 11 applied. Cactus’s ledger does not allocate the payments to particular months of assessments, 12 instead applying payments to a running balance that includes assessments, late fees, and interest. 13 Id. at 71-75; see also ECF No. 72-8 at 9 (stating that payments were applied “to the running 14 balance”). There is no evidence of Cactus’s policy about how it would apply payments.

15 Premier argues that none of the payments after the notice of delinquent assessment lien 16 was applied to assessments accrued before the notice because Cactus’s ledger “shows the last 17 payment actually applied to assessments was made on 5/8/2009, months before the Notice of 18 Delinquent Assessment Lien was recorded.” ECF No. 75 at 4. Premier is incorrect. Cactus’s 19 ledger credits $481.33 toward assessments as of May 10, 2013, which is the date the sale was 20 conducted. ECF No. 72-8 at 308-09. 21 Although the ledger shows Cactus applied the payments to assessments, it does not 22 indicate which assessments were paid, other than as a credit to a running balance. I therefore 23 must determine the equitable allocation of the $481.33 in payments. 1 The Supreme Court of Nevada provided some direction on how I am to make this 2 determination. I “should make the allocation in view of all of the circumstances, as is most in 3 accord with justice and equity and will best protect and maintain the rights of both the debtor and 4 creditor.” Cranesbill Tr., 459 P.3d at 231 (quotation omitted). In reaching that determination, I 5 should consider what the debtor likely desired when making the payment. Id. I also should

6 consider that other jurisdictions recognize a “legal preference for paying the earliest matured 7 debts.” Id. In addressing this legal preference, I may consider whether “the unpaid HOA 8 assessments and other costs the homeowner is required to pay to the HOA, such as the costs of 9 foreclosure, to be on a running account, and therefore a single debt, or whether it considers there 10 to be multiple accounts.” Id. And I may reference general allocation guidelines in relevant 11 treatises and Restatements, including those that relate to the debtor’s obligation to third parties to 12 pay the debt. Id. at 231 and n.4. 13 Here, it is likely that the homeowner would prefer the payment be allocated to the 14 superpriority amount. As noted by the Supreme Court of Nevada, in HOA foreclosure cases in

15 Nevada, “it seems likely that a homeowner would prefer to cure the default on the superpriority 16 lien before satisfying any other debts owed to an HOA to avoid a superpriority lien foreclosure 17 and the consequent loss of security to satisfy the obligation secured by the first deed of trust.” Id. 18 at 231 n.3. This is consistent with the legal preference for paying the earliest matured debts, 19 particularly for running accounts like Cactus’s ledger. See 70 C.J.S. Payment § 55 (2019) (stating 20 that “[i]n the case of a running account . . . the court generally will apply [unallocated payments] 21 to the extinguishment of the earliest items of indebtedness”); 60 Am. Jur. 2d Payment § 72 22 (2019) (same).1 And this is in line with the homeowners’ contractual obligation under the deed 23

1 Both sources cited favorably in Cranesbill Trust, 459 P.3d at 231. 1 of trust to pay assessments and other liens that can attain priority over the deed of trust. See ECF 2 No. 72-1 at 6, 14; Cranesbill Tr., 459 P.3d at 231 n.4 (stating that “a payment is generally 3 allocated first to a debt that the debtor is under a duty to a third person to pay immediately” 4 (quoting the Restatement (Second) of Contracts § 260(2)(a))). 5 Justice and equity therefore support applying the $481.33 in payments to the oldest

6 assessments due. See Diakonos Holdings, LLC v. Katie Baby, LLC, No. 77616, 462 P.3d 694, 7 2020 WL 2527451, at *1 (Nev. May 15, 2020) (holding that “the district court properly looked to 8 the purpose of the relevant statutory scheme, [Nevada Revised Statutes] Chapter 116, and how 9 partial payments have been applied to debts in other cases, in deciding that the homeowner’s 10 payments in this case applied to the assessments making up the superpriority default”). Because 11 the homeowner paid $481.33 and the superpriority amount was at most $270, the superpriority 12 lien was satisfied and the deed of trust was preserved by operation of law. See Bank of Am., N.A. 13 v. SFR Investments Pool 1, LLC, 427 P.3d 113, 116 (Nev. 2018) (en banc). Because the sale was 14 void as to the deed of trust by operation of law, Premier’s bona fide purchaser status is irrelevant.

15 Id. at 121. I therefore grant Bank of America’s motion for summary judgment and deny 16 Premier’s motion. Because the deed of trust was not extinguished as a matter of law, I dismiss as 17 moot Bank of America’s alternative damages claims against Cactus and I deny as moot Cactus’s 18 motion for summary judgment. 19 That leaves the third-party claims between Cactus and NAS. Presumably, these claims 20 are moot given that Bank of America’s damages claims against Cactus are moot. However, 21 before I dismiss them as moot, I will direct Cactus and NAS to confer and either dismiss their 22 claims against each other or file a proposed joint pretrial order. 23 / / / / 1 Finally, I note some irregularities in the pleadings. Defendant Ticor Title Company was 2 served but never answered. Bank of America has taken no action to enforce its claims against 3 Ticor since Ticor’s answer was due in 2015. I therefore direct Bank of America to show cause 4 why its claim against Ticor should not be dismissed for failure to prosecute. 5 Next, the amended complaint has several irregularities. Defendant THL Family

6 Investments LLC is listed in the caption of the amended complaint but not in the body. ECF No. 7 68. Meanwhile, Wei Chen is identified in the body of the amended complaint but not in the 8 caption. Id. No summons was issued for Chen nor is there any proof of service. I therefore 9 direct the parties to confer and to file a status report on who are proper defendants in this case for 10 the entry of final judgment. If the parties do not agree on any point, the status report shall set 11 forth their respective positions and briefly explain why their position is the correct one. 12 II. CONCLUSION 13 I THEREFORE ORDER that plaintiff Bank of America, N.A.’s motion for summary 14 judgment (ECF No. 72) is GRANTED as follows: It is hereby declared that the non-judicial

15 foreclosure sale conducted by Cactus Creek at Mountain’s Edge Homeowners Association, Inc. 16 on May 10, 2013 did not extinguish the deed of trust and the property located at 10609 Cave 17 Ridge Street in Las Vegas, Nevada remains subject to the deed of trust. 18 I FURTHER ORDER that defendants Premier One Holdings, Inc. and THL Family 19 Investment LLC’s motion for summary judgment (ECF No. 71) is DENIED. 20 I FURTHER ORDER that plaintiff Bank of America’s alternative damages claims 21 against defendant Cactus Creek at Mountain’s Edge Homeowners Association, Inc. are 22 dismissed as moot. 23 / / / / 1 I FURTHER ORDER that defendant Cactus Creek at Mountain’s Edge Homeowners 2\| Association, Inc.’s motion for summary judgment (ECF No. 69) is DENIED as moot. 3 I FURTHER ORDER that by August 7, 2020, Cactus Creek at Mountain’s Edge Homeowners Association, Inc. and Nevada Association Services, Inc. shall either dismiss their claims against each other or file a proposed joint pretrial order on the third-party claims. Failure to take either of these actions by that date will result in dismissal of the third-party claims 7|| without prejudice. 8 I FURTHER ORDER that by July 31, 2020, plaintiff Bank of America, N.A. shall show 9|| cause why its claim against defendant Ticor Title Company should not be dismissed for failure to 10]| prosecute. Failure to respond by that date will result in dismissal of this claim without prejudice. 11 I FURTHER ORDER that by August 7, 2020, the parties shall file a status report regarding who are the proper defendants for entry of final judgment. If the parties do not agree 13]/on any point, the status report shall set forth their respective positions and briefly explain why their position is the correct one. 15 DATED this 10th day of July, 2020. 16 ANDREW P.GORDON sits 18 UNITED STATES DISTRICT JUDGE

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