7912 Limbwood Court Trust v. Wells Fargo Bank, N.A.

979 F.Supp.2d 1142

7912 LIMBWOOD COURT TRUST, Plaintiff,

v.WELLS FARGO BANK, N.A.; MTC Financial Inc.; and Federal Home Loan Mortgage Corporation, Defendants.

No. 2:13–CV–00506–PMP–GWF.

United States District Court, D. Nevada.

Oct. 28, 2013.

Joseph A. Gutierrez, Luis A. Ayon, Maier Gutierrez PLLC, Las Vegas, NV, for Plaintiff.

Chelsea Crowton, Wright, Finlay & Zak, LLP, Las Vegas, NV, Richard J. Reynolds, Burke Williams & Sorenson LLP, Santa Ana, Orange County, CA, Michael E. Sullivan, Robison Belaustegui Sharp & Low, Reno, NV, for Defendants.

ORDER

PHILIP M. PRO, District Judge.

This case is one of many similar disputes over whether a foreclosure sale conducted by a homeowners' association (“HOA”) to collect unpaid HOA assessments extinguishes all junior liens, including a first deed of trust. Presently before the Court are the following motions:

1. Defendant MTC Financial Inc.'s Motion to Dismiss (Doc. # 37), filed on May 23, 2013. Defendants Federal Home Loan Mortgage Corporation and Wells Fargo Bank, N.A. filed a Joinder (Doc. # 39) on May 28, 2013. Plaintiff 7912 Limbwood Court Trust did not file a response to this Motion.

2. Defendants Federal Home Loan Mortgage Corporation and Wells Fargo Bank, N.A.'s Motion to Dismiss (Doc. # 40), filed on May 29, 2013. Defendant MTC Financial Inc. filed a Joinder (Doc. # 41) on May 29, 2013. Plaintiff filed an Opposition (Doc. # 43) on June 10, 2013. Defendants Federal Home Loan Mortgage Corporation and Wells Fargo Bank, N.A. filed a Reply (Doc. # 46) on June 24, 2013. Defendant MTC Financial Inc. filed a Joinder (Doc. # 47) on June 25, 2013.

3. Defendants Federal Home Loan Mortgage Corporation and Wells Fargo Bank, N.A.'s Motion to Expunge Lis Pendens (Doc. # 48), filed on June 28, 2013. Plaintiff filed an Opposition (Doc. # 49) on July 15, 2013. Defendants Federal Home Loan Mortgage Corporation and Wells Fargo Bank, N.A. filed a Reply (Doc. # 50) on July 22, 2013.

I. BACKGROUND

Because the matter is before the Court on motions to dismiss, the following recitation of background facts is taken largely from the Amended Complaint, which the Court takes as true. Williams v. Gerber Prods. Co., 552 F.3d 934, 937 (9th Cir.2008). Additionally, the Court takes judicial notice of the fact that certain documents were recorded in the Office of the County Recorder for Clark County, Nevada. See United States v. Ritchie, 342 F.3d 903, 908–09 (9th Cir.2003).

The property at issue, located at 7912 Limbwood Court in Las Vegas, Nevada, previously was owned by Sandra and Sonya Newton (the “Newtons”). (Am. Compl. (Doc.# 33) at 1; Request for Judicial Notice (Doc. # 38), Ex. 1.) The property was subject to a first deed of trust recorded in 2004 which identified Silver State Mortgage as the lender and Lawyers Title of Nevada as the trustee. (Request for Judicial Notice (Doc. # 38), Ex. 1.) In 2011, Silver State Mortgage assigned the deed of trust to Defendant Wells Fargo Bank, N.A. (“Wells Fargo”). (Am. Compl. at 2–3; Request for Judicial Notice (Doc. # 38), Ex. 2.) Defendant MTC Financial Inc. (“MTC”) thereafter was substituted as the trustee under the deed of trust. (Request for Judicial Notice (Doc. # 38), Ex. 3.)

The property is subject to the 1995 Covenants, Conditions, and Restrictions (“CC & Rs”) recorded by the Elkhorn Community Association (“Elkhorn”). (Am. Compl. at 3; Request for Judicial Notice (Doc. # 12), Ex. P.) In 2010, Elkhorn initiated an HOA foreclosure sale of the property pursuant to Nevada Revised Statutes § 116.3116 et seq. to recover unpaid HOA assessments. (Am. Compl. at 2; Request for Judicial Notice (Doc. # 12), Exs. G–I.) According to the Amended Complaint, Elkhorn, through its agent Angius & Terry, LLC, conducted the foreclosure sale in compliance with all statutory notice requirements. (Am. Compl. at 2–3.) The sale was conducted on March 6, 2012, at which Plaintiff purchased the property. ( Id. at 2; Request for Judicial Notice (Doc. # 12), Exs. H–J.) The HOA foreclosure deed was recorded with the Clark County Recorder on March 16, 2012. (Am. Compl. at 2; Request for Judicial Notice (Doc. # 12), Ex. J.)

On October 5, 2012, Wells Fargo and MTC recorded a notice of default and election to sell based on the Newtons' deed of trust. (Request for Judicial Notice (Doc. # 38), Ex. 4.) The sale was set for March 8, 2013. (Request for Judicial Notice (Doc. # 38), Ex. 5.)

Plaintiff brought suit in Nevada state court on March 5, 2013, against Wells Fargo, MTC, Republic Services, and the Newtons to quiet title in the property. (Pet. for Removal (Doc. # 1), Ex. A.) Plaintiff moved for a temporary restraining order and preliminary injunction seeking to enjoin Wells Fargo's foreclosure sale. (Pet. for Removal, Ex. E.) The state court set a hearing for March 12, 2013. (Pet. for Removal, Ex. F.) However, Wells Fargo and MTC sold the property on March 8, 2013, to Defendant Federal Home Loan Mortgage Corporation (“Freddie Mac”). ( Id.; Am. Compl. at 3; Request for Judicial Notice (Doc. # 38), Exs. 6–7.) The state court set a hearing for April 2, 2013, for Defendants to show cause why the sale should not be set aside. (Pet. for Removal, Ex. F.) Prior to the April 2 hearing, MTC removed the action to this Court. (Pet. for Removal.)

This Court set a hearing on Plaintiff's Motion for Preliminary Injunction and the Nevada state court's order to show cause why the sale should not be set aside. (Order (Doc. # 18).) At the hearing, the Court denied Plaintiff's motion for injunctive relief without prejudice for Plaintiff to file an Amended Complaint. (Mins. of Proceedings (Doc. # 30).) Plaintiff filed an Amended Complaint against Wells Fargo, MTC, and Freddie Mac, asserting claims for wrongful foreclosure and to quiet title in the property. (Am. Compl.)

Defendant MTC now moves to dismiss, arguing MTC claims no interest in the property, and therefore it is not a proper defendant in a quiet title action. Additionally, MTC contends Plaintiff's wrongful foreclosure claim against MTC should be dismissed because MTC owes no common law duty to Plaintiff, MTC was an agent acting for a disclosed principal, and a wrongful foreclosure claim lies only as between trustors and mortgagors.

Defendants Wells Fargo and Freddie Mac join in MTC's Motion and also separately move to dismiss. Wells Fargo and Freddie Mac argue Wells Fargo's lien is superior to Elkhorn's HOA lien, and therefore it was not extinguished by the HOA foreclosure sale. Wells Fargo and Freddie Mac contend that under the Nevada statutory scheme, foreclosure on the HOA's lien does not extinguish the first deed of trust. Rather, the HOA's lien is a payment priority lien only, and the first deed of trust continues to encumber the property after foreclosure of the HOA lien. Wells Fargo and Freddie Mac contend that Plaintiff thus purchased merely a possessory interest in the property subject to the first deed of trust. Wells Fargo and Freddie Mac contend it would violate their due process rights to allow a later-recorded HOA assessment lien to extinguish the deed of trust lien recorded several years earlier. Wells Fargo and Freddie Mac also contend that Elkhorn's CC & Rs preserve the first deed of trust's priority over HOA liens. Defendants therefore also move to expunge the Notice of Lis Pendens that Plaintiff recorded on the property.

Plaintiff responds that Nevada's statutory scheme provides the HOA with a lien for nine months' worth of HOA assessments which is superior to the first deed of trust, referred to as the “super priority lien.” According to Plaintiff, if the HOA forecloses on the super priority lien, all junior liens, including the first deed of trust, are extinguished. Plaintiff further contends an HOA cannot waive its super priority lien through the CC & Rs. Plaintiff also argues Defendants received the statutory notice required, and all lenders were on notice of the possibility of a super priority lien extinguishing a first deed of trust upon enactment of the super priority statutory scheme in 1991. Plaintiff contendsDefendants could have preserved the security interest by complying with the statutory requirements to receive notice and by paying off the HOA super priority lien, but they sat on their rights and cannot be heard to complain now.

II. DISCUSSION

In considering a motion to dismiss, “all well-pleaded allegations of material fact are taken as true and construed in a light most favorable to the non-moving party.” Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir.1998). However, the Court does not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations in the plaintiff's complaint. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754–55 (9th Cir.1994). There is a strong presumption against dismissing an action for failure to state a claim. Ileto v. Glock Inc., 349 F.3d 1191, 1200 (9th Cir.2003). A plaintiff must make sufficient factual allegations to establish a plausible entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Such allegations must amount to “more than labels and conclusions, [or] a formulaic recitation of the elements of a cause of action.” Id. at 555, 127 S.Ct. 1955.

A. MTC's Motion to Dismiss

Under Nevada law, “[a]n action may be brought by any person against another who claims an estate or interest in real property, adverse to the person bringing the action, for the purpose of determining such adverse claim.” Nev.Rev.Stat. § 40.010. Because the Amended Complaint does not allege MTC claims an interest in the property, and MTC disclaims any interest in the property, the Court will dismiss Plaintiff's quiet title claim as against Defendant MTC.

As to the wrongful foreclosure claim against MTC, a trustee under a deed of trust owes no duties beyond those imposed by the deed of trust and applicable foreclosure statutes. Harlow v. MTC Fin. Inc., 865...