ANDREW P. GORDON, District Judge.
This case is one of many in Nevada focusing on the effects of a foreclosure sale conducted by a homeowners' association ("HOA"). Before me are the parties' cross-motions for summary judgment on the plaintiff's claims for wrongful foreclosure and to quiet title. I previously ordered the parties to file supplemental briefs discussing whether the trustee's deed following the HOA's foreclosure sale validly conveyed title to the plaintiff. (Dkt. #130.)
The sale conducted by the HOA's agent did not convey superior title to the plaintiff. I therefore enter summary judgment in favor of the defendants.
Summary judgment is appropriate if the pleadings, discovery responses, and affidavits demonstrate "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a), (c). A fact is material if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the non-moving party to go beyond the pleadings and set forth specific facts demonstrating there is a genuine issue of material fact for trial. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531 (9th Cir. 2000). I view the evidence, and make reasonable inferences, in the light most favorable to the non-moving party. James River Ins. Co. v. Hebert Schenk, P.C., 523 F.3d 915, 920 (9th Cir. 2008).
Under Nevada law, any person may bring a claim against others who claim an estate or interest in real property "for the purpose of determining such adverse claim." Nev. Rev. Stat. § 40.010. In an action under § 40.010 to quiet title to real property, "each party must plead and prove his or her own claim to the property in question and a plaintiff's right to relief therefore depends on superiority of title." Chapman v. Deutsche Bank Nat'l Trust Co., 302 P.3d 1103, 1106 (Nev. 2013) (en banc) (quotation omitted).
I set forth the relevant facts in full in a prior order, so I will not repeat them here except where necessary. (Dkt. #130.) The plaintiff claims title through the foreclosure sale conducted by the HOA and the resulting trustee's deed upon sale (the "2012 deed"). According to the plaintiff, the HOA foreclosed on its super-priority lien, thereby extinguishing the first deed of trust. The plaintiff therefore contends the 2012 deed conveyed superior title to it. The defendants respond that the HOA foreclosed on only the non-priority portion of its lien and therefore the 2012 deed did not convey superior title to the plaintiff. The parties dispute whether an HOA can split its lien into super-priority and sub-priority portions and foreclose on only one portion of the lien.
Nevada's HOA foreclosure statutory scheme, set forth in Nevada Revised Statutes § 116.3116 et seq., does not expressly permit an HOA to separately foreclose on only the superor sub-priority portion of its lien, but it also does not expressly prohibit it. The Supreme Court of Nevada has not directly addressed this question. That Court described the HOA foreclosure statutory scheme as follows:
SFR Investments Pool 1 v. U.S. Bank, 334 P.3d 408, 411 (Nev. 2014) (en banc). The SFR Court was not confronted with the question of whether an HOA could split its lien and non-judicially foreclose on one piece independent of the other. It is thus unclear from this language whether the HOA has a single lien that is split into two pieces for the limited purposes of payment and determining priority with respect to the first deed of trust, or whether the statute splits the lien into two separately enforceable pieces.
The common law offers little help resolving the question because "the split-lien approach represents a `significant departure from existing practice.'" Id. at 412 (quoting Uniform Common Interest Ownership Act of 1982, § 3-116, cmt. 1; Uniform Common Interest Ownership Act of 1994 & 2008, § 3-116 cmt. 2). Instead, the split lien is a "specially devised mechanism designed to strike an equitable balance between the need to enforce collection of unpaid assessments and the obvious necessity for protecting the priority of the security interests of lenders." Id. (quotation omitted).
Other interpretive sources provide limited guidance. The Nevada Real Estate Division of the Department of Business and Industry ("NRED") is charged with administering Chapter 116. Id. at 416-17. The NRED issued an advisory opinion in 2012 that suggests an HOA can separately enforce its super- and sub-priority liens. In giving advice to HOAs on how best to protect their rights, the NRED suggested the following:
State of Nev., Dep't of Business & Industry, Real Estate Div., Advisory Op. 13-01 at 19 (Dec. 12, 2012). But the NRED did not directly address the question of whether an HOA can split its lien and non-judicially foreclose on only the sub-priority portion.
I need not resolve this question because the plaintiff in this case cannot meet its burden of showing it has superior title either way. If an HOA can split its lien, it did so here. If it cannot, then the sale is void, as explained below.
If an HOA can split its lien, it did so here, and there is no genuine issue of material fact about that. The HOA's agent, A&T, directed that the following announcement be made at the auction prior to the sale:
(Dkt. #111-14.) The 2012 deed confirms that the HOA intended to foreclose on only the subpriority portion of its lien because the deed expressly states that it conveyed only "that portion of [the HOA's] right, title and interest secured by the sub-priority portion of its lien" on the property. (Dkt. #111-10.)
There is no genuine issue of material fact that the 2012 deed accurately reflects the parties' intended transaction. The parties' intent "must determine the nature and extent of the estate conveyed," and "that intent can be ascertained only from the language of the deed[]" itself. City Motel, Inc. v. State ex rel. State Dep't of Highways, 336 P.2d 375, 377 (Nev. 1959). Here, the pre-auction announcement and the 2012 deed demonstrate that the HOA did not intend to convey the property free and clear of the HOA's super-priority lien. Instead, the HOA intended to foreclose on its sub-priority lien with the property still being subject to the super-priority lien. Given the pre-auction announcement, the plaintiff took with notice that the property was still subject to the super-priority lien and thus the first deed of trust was not extinguished.
Even if the deed were ambiguous about whether the HOA had foreclosed on its superpriority lien, the announcement made before the sale parallels the language in the 2012 deed and thus confirms the deed accurately reflects the parties' intended transaction. See Lowden Inv. Co. v. Gen. Elec. Credit Co., 741 P.2d 806, 809 (Nev. 1987) (stating that parol evidence "is not admissible to vary or contradict the terms of a written agreement" but "is admissible in order to resolve ambiguities in a written instrument"); Kartheiser v. Hawkins, 645 P.2d 967, 968 (Nev. 1982) (stating the parties' intentions "are determined from all the circumstances surrounding the transaction"). Although the plaintiff points to the notices that A&T recorded before the sale indicating that the HOA was foreclosing on its super-priority lien, the terms of the auction were changed before bidding commenced. See Restatement (Second) of Contracts § 28(2) ("Unless a contrary intention is manifested, bids at an auction embody terms made known by advertisement, posting or other publication of which bidders are or should be aware, as modified by any announcement made by the auctioneer when the goods are put up."). The plaintiff cites no law for the proposition that the terms of sale could not be altered prior to the auction commencing. The plaintiff was on notice of the terms of the sale before it placed a bid. It could have decided not to bid in light of the announcement.
For similar reasons, there is no basis to reform the deed. Under Nevada law, courts "have the power to order the reformation of deeds, contracts, and other instruments, when, through mistake of the parties thereto, or through the fraud of one of the parties, or unconscionable conduct amounting to fraud, such instrument does not contain the real terms of the contract between them." Wainwright v. Dunseath, 211 P. 1104, 1106 (Nev. 1923). Here, there is no genuine issue of material fact that the deed is consistent with the terms of sale announced at the auction prior to any bidding. The plaintiff has never sought to reform the deed.
Consequently, if the HOA can split its lien, no genuine issue of material fact remains that it do so here. Because the HOA foreclosed on only its sub-priority lien, the plaintiff cannot meet its burden of showing it has title superior to the defendants.
The plaintiff nevertheless contends that regardless of the parties' intent or the deed's language, the HOA cannot split its lien so it must have foreclosed on its super-priority lien by operation of law. The plaintiff is requesting a result the parties to the transaction did not intend while also seeking the benefit of a statutory scheme with which the HOA did not comply. For the reasons set forth below, I predict
If an HOA cannot split its lien as a matter of Nevada law, then the HOA here attempted to do something not allowed by law. It purported to impose a condition on the foreclosure sale and resulting deed that it had no right or power to require, i.e., that the property would still be subject to the super-priority lien after the foreclosure sale. The sale would also be considered defective because the HOA inaccurately described what interest it was foreclosing on and what bidders would be purchasing. Therefore, if the HOA cannot split its lien as a matter of law, then the sale is void. See, e.g., Nevada Land & Mortg. Co. v. Hidden Wells Ranch, Inc., 435 P.2d 198, 200 (Nev. 1967) (stating that a foreclosure sale is void if not done in accordance with the foreclosing party's power of sale and "applicable law"); In re Cedano, 470 B.R. 522, 530 (9th Cir. BAP 2012) (stating that "substantially defective sales have been held to be void"). When a sale is void, it is "ineffectual." Deep v. Rose, 364 S.E.2d 228, 232 (Va. 1988). "No title, legal or equitable, passes to the purchaser." Id.; see, e.g., Gilroy v. Ryberg, 667 N.W.2d 544, 554 (Neb. 2003) (stating "when a sale is void, `no title, legal or equitable, passes to the sale purchaser or subsequent grantees'" even if the property is bought by a bona fide purchaser (quoting 1 Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 7.20 (3d ed. 1993) & citing 12 Thompson on Real Property, supra, § 101.04(c)(2)(ii) at 403 (David A. Thomas ed.1994)). Consequently, no title passed to the plaintiff via the HOA's foreclosure sale.
Fairness also dictates this result.
Holding as plaintiff requests—that the HOA foreclosed on its super-priority lien—would award a windfall to a purchaser who took with notice of the announcement that the sale was not of the super-priority lien. To avoid unfairness to the first deed of trust holder and other bidders and to uphold the parties' intent, equity counsels that the sale is void. Consequently, if the HOA cannot split its lien, the HOA foreclosure sale is void, and the plaintiff cannot meet its burden of showing it has title superior to the defendants.
Because the plaintiff cannot meet its burden of establishing superior title, I grant the defendants' motions for summary judgment and deny the plaintiff's motion for summary judgment on the plaintiff's quiet title claim. Additionally, because the plaintiff's quiet title claim fails, so does its wrongful foreclosure claim. See Collins v. Union Federal Sav. & Loan Ass'n, 662 P.2d 610, 623 (Nev. 1983). I therefore grant the defendants' motions for summary judgment and deny the plaintiff's summary judgment motion on the plaintiff's wrongful foreclosure claim.
IT IS THEREFORE ORDERED that defendants Wells Fargo Bank, N.A. and Federal Home Loan Mortgage Corporation's renewed motions for summary judgment
IT IS FURTHER ORDERED that plaintiff 7912 Limbwood Court Trust's motion for summary judgment
IT IS FURTHER ORDERED that Judgment is hereby entered in favor of defendants Wells Fargo Bank, N.A. and Federal Home Loan Mortgage Corporation and against plaintiff 7912 Limbwood Court Trust.