Bank of America, N.A. v. South Valley Ranch Community Association

• Court: District Court, D. Nevada
• Decided: September 25, 2019
• Docket: 2:16-cv-01013
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 * * *

7 BANK OF AMERICA, N.A., SUCCESOR BY Case No. 2:16-cv-01013-KJD-CWH MERGER TO BAC HOME LOANS 8 SERVICING, LP, ORDER

9 Plaintiff,

10 v.

11 SOUTH VALLEY RANCH COMMUNITY ASSOCIATION, et al., 12 Defendant. 13 Presently before the Court is Plaintiff’s Motion for Partial Summary Judgment (#50). 14 Defendant Hitchen Post Dr. Trust (“Hitchen”) filed a response in opposition (#54) to which 15 Plaintiff replied (#59). Defendant South Valley Ranch Community Association (“South Valley”) 16 also filed a Motion for Summary Judgment (#62). Plaintiff filed a response in opposition (#63) to 17 which South Valley replied (#66). 18 I. Facts 19 Mary Jayne and Charles Swearingen (“Borrowers”) financed their property located at 733 20 Hitchen Post Drive, Henderson, Nevada with a $140,409 loan from Countrywide Bank in 2009. 21 They secured the loan with a deed of trust. Later that year, Countrywide merged into and with 22 Plaintiff Bank of America (“BANA”). BANA received its interest as a beneficiary of the deed of 23 trust by an assignment which was recorded on October 20, 2011. 24 The property is subject to and governed by the Declaration of Covenants, Conditions and 25 Restrictions and Grant of Easements (“CC&Rs”) for South Valley Ranch Community 26 Association. Eventually, Borrowers defaulted on their obligation to pay assessments of 27 approximately $60 quarterly under the CC&Rs to South Valley. On August 7, 2012, South 28 1 Valley through its foreclosure agent, Defendant Homeowners Association Services (“HAS”), 2 recorded notice of delinquent assessment lien. HAS recorded notice of default and election to 3 sell on July 17, 2013. The notice stated that Borrowers owed $2,249.03 plus costs and fees. 4 On August 2, 2013, BANA’s counsel offered to pay the superpriority lien and asked for a 5 total. In response, HAS provided an account statement which reflected that Borrowers owed $60 6 per quarter in assessments. The statement did not indicate that they owed any maintenance or 7 nuisance abatement charges. Based on the ledger, BANA calculated the superpriority amount as 8 $180 (three quarters – or nine months – of annual assessments) and tendered that amount by 9 check to HAS on September 19, 2013. HAS received, but rejected, BANA’s tender. 10 Notice of sale was recorded on January 27, 2014. Foreclosure sale was conducted on or 11 about February 13, 2014. Hitchen purchased the property for $21,100.00. The parties now 12 disagree as to whether South Valley’s foreclosure extinguished BANA’s lien or whether Hitchen 13 purchased the property subject to the lien. 14 II. Standard for Summary Judgment 15 The purpose of summary judgment is to avoid unnecessary trials by disposing of 16 factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986); 17 Nw. Motorcycle Ass’n v. U.S. Dept. of Agric., 18 F.3d 1468, 1471 (9th Cir. 1994). It is available 18 only where the absence of material fact allows the Court to rule as a matter of law. Fed. R. Civ. 19 P. 56(a); Celotex, 477 U.S. at 322. Rule 56 outlines a burden shifting approach to summary 20 judgment. First, the moving party must demonstrate the absence of a genuine issue of material 21 fact. The burden then shifts to the nonmoving party to produce specific evidence of a genuine 22 factual dispute for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 23 (1986). A genuine issue of fact exists where the evidence could allow “a reasonable jury [to] 24 return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 25 (1986). The Court views the evidence and draws all available inferences in the light most 26 favorable to the nonmoving party. Kaiser Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 27 1100, 1103 (9th Cir. 1986). Yet, to survive summary judgment, the nonmoving party must show 28 more than “some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586. 1 III. Analysis 2 Bank of America argues that its deed of trust survived South Valley’s nonjudicial 3 foreclosure for five discrete reasons: (1) the bank tendered—or was excused from tendering—the 4 superpriority portion of the HOA lien; (2) the association foreclosed under an unconstitutional 5 version of NRS § 116; (3) the foreclosure sale violated due process as-applied; (4) the 6 Supremacy Clause preempts NRS § 116; and (5) the sale was unfair and should be equitably set 7 aside under Shadow Canyon. Because the Court finds Bank of America’s tender argument 8 dispositive, it need not reach the bank’s other arguments. South Valley, on the other hand, moves 9 for summary judgment on its quiet title claim. It seeks a declaration that South Valley’s 10 foreclosure extinguished both BANA’s and Borrower’s interest in the property. The Court turns 11 first to Bank of America’s motions. 12 A. Tender 13 Bank of America contends that its attempt to ascertain and pay the superpriority amount 14 of South Valley’s lien constituted valid tender and preserved its deed of trust. The Nevada 15 Supreme Court has addressed whether valid tender preserves a lender’s deed of trust in a series 16 of recent cases. In Bank of America, N.A. v. SFR Invs. Pool 1, LLC, the Court definitively held 17 that a lender’s valid tender prior to the association’s foreclosure preserves the lender’s first deed 18 of trust. 427 P.3d 113, 118 (Nev. 2018) (“Diamond Spur”). Tender is valid if (1) it pays the 19 entire superpriority lien (id. at 117) and (2) it is unconditional or insists only on conditions the 20 tendering party has a right to insist upon (id. at 118). The tendering party is under no obligation 21 to “keep [the tender] good” or deposit the tender into an escrow or court-established account. Id. 22 at 120–21. At bottom, valid tender voids the association’s foreclosure of the superpriority portion 23 of the association’s lien, which results in the buyer taking the property subject to the lender’s 24 first deed of trust. Id. at 121. 25 Then, in Bank of America, N.A. v. Thomas Jessup, LLC Series VII, the Nevada Supreme 26 Court reaffirmed the tender rule and carved out an exception where an association makes clear 27 that it will reject tender. 435 P.3d 1217 (Nev. 2019). Thus, a lender can preserve its deed of trust 28 against an association’s foreclosure by calculating the superpriority balance and tendering 1 payment for that amount. Diamond Spur, 427 P.3d at 117. Or, even if money never changes 2 hands, the lender’s deed of trust survives foreclosure if it attempted to tender payment, but the 3 association rejects that payment. Thomas Jessup, 435 P.3d at 1220. This Court has adopted the 4 Nevada Supreme Court’s reasoning. See RH Kids, LLC v. MTC Fin., 367 F.Supp.3d 1179, 5 1185–86 (D. Nev. 2019); Deutsche Bank Nat’l Tr. Co. v. SFR Invs. Pool 1, LLC, No. 2:17-cv- 6 0457-KJD-GWF, 2018 WL 5019376 (D. Nev. Oct. 16, 2018). 7 The facts here are similar to Diamond Spur, and the result is the same: BANA’s deed of 8 trust survived the association’s foreclosure. Hitchen and South Valley brings a litany of 9 arguments challenging BANA’s tender. Those arguments break down into three main groups. 10 First, Hitchen argues that equitable subrogation prevented the bank from preserving its deed of 11 trust because, by paying the superpriority lien, the bank assumed the position of Borrowers. 12 Second, Hitchen argues that BANA’s deed of trust must be extinguished because Hitchen was an 13 innocent third-party purchaser. Finally, Hitchen and South Valley challenges the validity of the 14 tender itself and the admissibility of BANA’s evidence of that tender. Hitchen and South Valley 15 claims that the bank’s records have not been adequately authenticated. None of Hitchen and 16 South Valley’s arguments dissuade the Court from applying Diamond Spur and finding for 17 BANA. 18 1. Equitable subrogation 19 First, in the nonjudicial-foreclosure context, equitable subrogation would not 20 prevent BANA from satisfying South Valley’s superpriority lien. Equitable subrogation allows a 21 person who pays off someone else’s encumbrance to “assume the same priority position as the 22 holder of the previous encumbrance.” Houston v. Bank of America, 78 P.3d 71, 73 (Nev. 2003). 23 In effect, the party paying the debt on behalf of another may “leap-frog over an intervening lien 24 holder.” Am. Sterling Bank v. Johnny Mgmt. LV, Inc., 245 P.3d 535, 539 (Nev. 2010). Through 25 subrogation, a junior lienholder may satisfy a senior lienholder’s encumbrance and ascend to the 26 senior lienholder’s priority position. Houston, 78 P.3d at 73. 27 However, Diamond Spur is clear that a bank’s tender of the superpriority lien 28 extinguishes that lien and preserves the bank’s deed of trust. 427 P.3d at 121. There, the bank’s 1 valid tender cured the default as to the superpriority portion of the HOA’s lien. Equitable 2 subrogation did not prevent curing the delinquency as Hitchen and South Valley suggests. 3 Hitchen and South Valley acknowledge this but fail to distinguish Diamond Spur from this case. 4 Instead, they argue that the Nevada Supreme Court got Diamond Spur wrong. See Def.’s Opp. to 5 Pl.’s Mot. Summ. J. 7, ECF No. 54 (“It cannot be the case that the Nevada Supreme Court 6 intended to disrupt more than 150 years of established law and jurisprudence respecting 7 [equitable subrogation]”). This case is neither the time nor the place to challenge the Nevada 8 Supreme Court’s Diamond Spur decision. And this Court is bound by the Nevada Supreme 9 Court’s interpretation of the applicability of equitable subrogation as it relates to NRS § 116. See 10 Ticknor v. Choice Hotels Intern., Inc., 265 F.3d 931, 939 (9th Cir. 2001). Accordingly, the Court 11 rejects Hitchen and South Valley’s argument that equitable subrogation prevented BANA from 12 preserving its deed of trust through valid tender. 13 2. Bona Fide Purchaser 14 Next, Hitchen argues that its status as an innocent bona fide purchaser protects its 15 interest at the bank’s expense. It points to Shadow Wood Homeowners Ass’n, Inc. v. New York 16 Cmty. Bankcorp, Inc. for support. 366 P.3d 1105 (Nev. 2016). The Shadow Wood court, 17 however, confronted different facts than these. There, the Nevada Supreme Court reviewed a 18 lower court decision that equitably set aside a foreclosure as unreasonable or oppressive. Id. at 19 1109. Although a district court may exercise its equitable authority to set aside an unjust 20 foreclosure sale, the bank failed to demonstrate that the foreclosure sale was so defective that it 21 must be set aside. Id. at 1114. The Supreme Court also found that when a court sits in equity, it 22 should not grant relief “to the possible detriment of innocent third parties.” Id. at 1115 quoting 23 Smith v. United States, 373 F.2d 419, 424 (4th Cir. 1966). 24 Unlike Shadow Wood, BANA’s tender argument does not require this Court to sit 25 in equity. To the contrary, the Court has determined that South Valley’s foreclosure did not 26 extinguish BANA’s deed of trust because the bank cured the superpriority default before the 27 foreclosure. While the Court is aware of the effect its decision has on Hitchen, its third-party 28 status did not prevent BANA from preserving its deed of trust. Therefore, because the Court is 1 not sitting in equity, it need not consider the balance of equities nor the effects of its decision on 2 a third-party. 3 Thus, Hitchen’s status as a bona fide purchaser does not matter here. Where a 4 lender has cured the superpriority default, the association has no authority to foreclose. Any 5 resulting foreclosure is void as to the superpriority lien. Diamond Spur, 427 P.3d at 121. When 6 BANA cured South Valley’s outstanding default, South Valley lost all power to convey that 7 portion of its interest in the property. Id. Therefore, whether Hitchen was a bona fide purchaser 8 for value is irrelevant. 9 3. Conditional Tender 10 Hitchen and South Valley contend that BANA’s offer of tender was invalid 11 because it was improperly conditional. The Court is not persuaded. First, a conditional tender is 12 not per se invalid. If the tender is conditional, the tendering party must have the right to insist on 13 the conditions. Diamond Spur, 427 P.3d at 118. Nevertheless, South Valley argues that the 14 conditions of this tender violate NRS § 116 because they would require South Valley to waive 15 any right to the nuisance or abatement fees that § 116 permitted them to collect. Setting aside the 16 fact that Hitchen and South Valley have not submitted evidence that BANA owed nuisance and 17 abatement charges in this case, the Nevada Supreme Court has already found that such offers of 18 tender do not violate § 116. Diamond Spur and Thomas Jessup both analyzed offers of tender 19 that were nearly identical to the offer of tender in this case. See Diamond Spur, 427 P.3d at 118; 20 Thomas Jessup, 435 P.3d at 1218–19. Neither offer offended § 116, and this Court finds no 21 reason to deviate from that determination. 22 4. Admissibility and Authentication of Evidence 23 Finally, the Court finds no defect with BANA’s evidence. Hitchen argues that 24 BANA failed to authenticate the account ledger that it used to calculate nine-months of South 25 Valley’s past-due assessments. The argument is two-fold: the account statement is inadmissible 26 hearsay and the affidavit authenticating the statement is defective because Miles Bauer was not 27 custodian of records for South Valley. Neither argument renders these documents inadmissible. 28 First, the business records exception does not require that the custodian of record for the business 1 that created the document authenticate that document. See MRT Const. Inc. v. Hardrives, Inc., 2 158 F.3d 478, 483 (9th Cir. 1998). Like here, an official from another entity who relied upon the 3 accuracy of the business record may properly authenticate it. Id.; see also Fed. R. Evid. 803(6). 4 Accordingly, the account statement provided by HAS to Miles Bauer is not inadmissible hearsay. 5 BANA has met its burden with the affidavit. Kendis, the affiant, had adequate 6 knowledge and information to authenticate these business records. Kendis stated he was familiar 7 with the type of records maintained by Miles Bauer in connection with [this] loan. He testified 8 that the ledger “is what it is claimed to be … [a] Statement of Account from [HAS] dated August 9 30, 2013, received by Miles Bauer[.]” See Plaintiff’s Mtn. for Partial S. Judgment (#50), Exhibit 10 7. The Court, therefore, overrules Hitchen and South Valley’s objection to BANA’s evidence. 11 In sum, BANA’s deed of trust survived South Valley’s trustee’s sale because the 12 bank’s tender cured the superpriority lien balance before foreclosure. That tender voided South 13 Valley’s foreclosure as to BANA’s interest in the property. Therefore, Hitchen acquired the 14 property subject to BANA’s existing deed of trust. The Court, therefore, grants Plaintiff Bank of 15 America’s motion and declares that its deed of trust still encumbers the property. 16 B. Hitchen’s Counterclaims 17 Hitchen filed counterclaims seeking to quiet title against BANA. Having found that 18 BANA’s tender cured the superpriority lien before South Valley’s foreclosure sale, Hitchen 19 purchased the property subject to BANA’s lien. Accordingly, Hitchen’s claims for relief must be 20 dismissed with prejudice. 21 C. BANA’s Remaining Wrongful Foreclosure and Breach of NRS § 116 Claims 22 After granting BANA’s motion and finding that its deed of trust survived South Valley’s 23 foreclosure, only BANA’s claims for wrongful foreclosure and breach of NRS § 116 against 24 HAS and South Valley and the bank’s injunction claim against Hitchen remain. As for BANA’s 25 wrongful foreclosure and breach of NRS § 116 claims, the bank pleaded those claims in the 26 alternative to its quiet title and declaratory relief claims. Because the Court has granted judgment 27 on the bank’s quiet title claim, it need not consider alternative claims. Accordingly, BANA’s 28 wrongful foreclosure and breach of NRS § 116 claims against South Valley and HAS are 1 | dismissed. 2 Likewise, the Court dismisses BANA’s injunctive relief claim against Hitchen. Although 3 | styled as a stand-alone cause of action here, an injunction is a remedy. See Jensen v. Quality 4) Loan Sve. Corp., 702 F.Supp.2d 1183, 1201 (E.D. Cal. 2010); In re Wal-Mart Wage and Hour 5 | Emp’t Practices Litig., 490 F.Supp.2d 1091, 1130 (D. Nev. 2007). Additionally, an injunction at 6 | this point is unnecessary. The Court has already quieted title and provided the declaratory relief 7 | the bank sought. Therefore, the Court dismisses BANA’s injunctive relief claim against Hitchen. 8 | Conclusion 9 Accordingly, IT IS HEREBY ORDERED that Plaintiff/Counterdefendant Bank of 10 | America, N.A.’s Motion for Partial Summary Judgment (#50) is GRANTED. The Court 11 | declares that BANA’s deed of trust in the property located at 733 Hitchen Post Drive, 12 | Henderson, Nevada survived South Valley Ranch Community Association’s nonjudicial 13 | foreclosure. The Court also declares that whatever interest Defendant Hitchen Post Dr. Trust 14 | acquired in the property it takes subject to Plaintiffs first deed of trust. 15 IT IS FURTHER ORDERED that Defendant South Valley Ranch Community 16 | Association’s Motion for Summary Judgment (#62) is DENIED as moot; 17 IT IS FURTHER ORDERED that the Clerk of the Court enter JUDGMENT for 18 | Plaintiff/Counterdefendant and against Defendants South Valley Ranch Community Association, 19 Homeowner Association Services, Inc., and Defendant/Counterclaimant Hitchen Post Dr. Trust. 20 | Dated this 25 day of September, 2019. 21 ™~ 22 eu —______ Kent J. Dawson 23 United States District Judge 24 25 26 27 28

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