Bank of N.Y. Mellon v. Enchantment at Sunset Bay Condo. Ass'n

2 F.4th 1229

BANK OF NEW YORK MELLON, fka Bank of New York, AS TRUSTEE FOR the CERTIFICATEHOLDERS OF CWALT, INC., ALTERNATIVE LOAN TRUST 2005-54CB, MORTGAGE PASS-THROUGH CERTIFICATES SERIES 2005-54CB, Plaintiff-Appellant,

v. ENCHANTMENT AT SUNSET BAY CONDOMINIUM ASSOCIATION; 732 Hardy Way Trust, Defendants-Appellees,andHarold Hill; Nevada Association Services, Inc., Defendants.

No. 19-17048

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 17, 2020 Pasadena, California

Filed June 25, 2021

Ariel E. Stern (argued), Natalie L. Winslow, and Rex D. Gardner, Akerman LLP, Las Vegas, Nevada, for Plaintiff-Appellant.

Michael F. Bohn (argued), Law Offices of Michael F. Bohn, Henderson, Nevada, for Defendant-Appellee 732 Hardy Way Trust.

Ryan D. Hastings (argued) and Sean L. Anderson, Leach Kern Gruchow Anderson Song, Las Vegas, Nevada, for Defendant-Appellee Enchantment at Sunset Bay Condominium Association.

Before: Johnnie B. Rawlinson, Danielle J. Forrest, and Lawrence VanDyke, Circuit Judges.

Concurrence by Judge VanDyke ;

Dissent by Judge Forrest

VANDYKE, Circuit Judge:

In this case, we are again presented with the effect of a foreclosure of a superpriority lien granted to a homeowners' association (HOA) under Nevada Revised Statute 116.3116.¹ As a consequence of the late-2000's financial crisis and its effect on Nevada homeowners, our court has seen many cases involving Nevada's HOA superpriority lien statute. But this case involves a unique wrinkle that we have not yet addressed. We must decide whether the Bank of New York Mellon (Bank), as the first deed of trust lienholder, may set aside a completed superpriority lien foreclosure sale on the grounds that the sale occurred in violation of the automatic stay in bankruptcy proceedings. See 11 U.S.C. § 362(a). Because the Bank has standing under Nevada's quiet title statute, Nevada Revised Statute 40.010, and established case authority confirms that any HOA foreclosure sale made in violation of the bankruptcy stay—like the foreclosure sale here—is void, not merely voidable, Schwartz v. United States (In re Schwartz) , 954 F.2d 569, 571–72 (9th Cir. 1992), we conclude that the Bank may raise the HOA's violation of the automatic stay provision, and that the Bank has superior title.²

I. BACKGROUND

This dispute involves the property at 732 Hardy Way in Mesquite, Nevada (Property), located in the Enchantment at Sunset Bay Condominium Association (HOA), and subject to the HOA's Declaration of Covenants, Conditions, and Restrictions, recorded in 2003. In 2005, Harold Hill purchased the Property with a $185,400 loan that was assigned to the Bank in 2013. In January 2014, Hill fell behind in his HOA dues, and the HOA recorded a Notice of Delinquent Assessment Lien. The next month, the HOA recorded a Notice of Default and Election to Sell and informed Hill that he needed to pay $3,130.56 or his home would be sold. By April 2014, Hill had filed for Chapter 13 bankruptcy and stated in his bankruptcy plan that he was surrendering the Property to the Bank and the HOA. An automatic bankruptcy stay went into effect, staying "any act to ... enforce any lien against property of the estate." 11 U.S.C. § 362(a)(4).

While Hill's bankruptcy case was still pending, the HOA recorded a Notice of Foreclosure Sale on July 15, 2014, and several weeks later sold the Property to 732 Hardy Way Trust (Trust) for $6,072.29 at a nonjudicial foreclosure sale.³ The Bank subsequently initiated this litigation, in which it (1) sued the HOA and the Trust to quiet title and for declaratory relief on the basis that the foreclosure sale was void and therefore did not extinguish the Bank's first deed of trust; (2) sought a preliminary injunction to prevent the Trust from selling or transferring the Property; and (3) requested an order declaring that the Bank could foreclose on its deed of trust. The Bank also sued the HOA for breach of Nevada Revised Statute 116.1113 and wrongful foreclosure.⁴

The Bank and the Trust each moved for summary judgment. The Trust argued it had superior title because the HOA foreclosure sale extinguished the Bank's deed of trust. Conversely, the Bank argued that the HOA foreclosure sale did not extinguish its lien because, inter alia, the sale violated the automatic bankruptcy stay and was thus void under Nevada and Ninth Circuit precedent, or alternatively, Nevada's HOA foreclosure statute violated due process. The district court granted summary judgment in favor of the Trust and dismissed the remaining claims against the HOA, holding simply "that the foreclosure sale extinguished the [Bank's] deed of trust on the [P]roperty and that [the Trust] purchased the property free and clear of the deed of trust." The Bank timely appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1291.

II. DISCUSSION

"We review de novo ‘the district court's decision on cross-motions for summary judgment.’ " BNSF Ry. Co. v. Or. Dep't of Revenue , 965 F.3d 681, 685 (9th Cir. 2020) (citation omitted). "Here, ... no material facts are disputed, so we ‘ask only whether the district court correctly applied the relevant substantive law.’ " Id. (citation omitted).

A. The Bank Has Standing to Raise the Violation of the Automatic Bankruptcy Stay.

The district court concluded that under Tilley v. Vucurevich (In re Pecan Groves) , 951 F.2d 242, 245 (9th Cir. 1991), the Bank lacked standing to challenge any violation of the automatic stay because it "was neither a party, a debtor, or a trustee in [the underlying] bankruptcy matter." The Bank argues that the district court misapplied In re Pecan Groves and incorrectly used that bankruptcy case to prevent the Bank from raising the voidness of the foreclosure sale in this diversity action in federal court. We agree that the district court indeed erred because the Bank had standing to make the argument that the HOA foreclosure sale occurred in violation of the bankruptcy stay and was thus void.

The parties do not dispute that the Bank has Article III standing, as the alleged extinguishment of the Bank's first deed of trust can be fairly traced to the HOA's violation of the bankruptcy stay. See Spokeo, Inc. v. Robins , ––– U.S. ––––, 136 S. Ct. 1540, 1547, 194 L.Ed.2d 635 (2016). Instead, the Trust argues that the Bank does not have prudential standing such that the Bank's grievance "fall[s] within the zone of interests protected or regulated by the statutory provision ... invoked in the suit." Bennett v. Spear , 520 U.S. 154, 162, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997).⁵

We disagree. The Bank here brought its quiet title claim under Nevada Revised Statute 40.010, which allows suit "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." Such a broad statement clearly "grants the [Bank] the cause of action that [it] asserts"—a declaration of its interest in the subject Property vis-à-vis the Trust's interest—such that the Bank satisfies the zone-of-interests test for prudential standing purposes. Bank of Am. Corp. v. City of Miami , ––– U.S. ––––, 137 S. Ct. 1296, 1302, 197 L.Ed.2d 678 (2017).

Although we held in In re Pecan Groves that "a creditor has no independent standing to appeal an adverse decision regarding a violation of the automatic stay," the Bank's quiet title action does not implicate this ruling. In re Pecan Groves , 951 F.2d at 245. In that case, we addressed whether a creditor had standing to appeal a bankruptcy order and reasoned that as "the trustee ha[d] not appealed the adverse ruling ... [n]o other party [could] challenge this ruling." Id. We did not consider whether a creditor was precluded from advancing a quiet title action premised on violation of the automatic stay, particularly in a diversity case where state law recognizes such a claim as a basis for voiding a foreclosure sale.

In contrast to the facts and procedural posture of In re Pecan Groves , the Bank brought this quiet title diversity action pursuant to Nevada precedent invalidating HOA foreclosure sales when the HOA has violated the automatic stay. LN Mgmt. LLC Series 5105 Portraits Place v. Green Tree Loan Servicing, LLC (Portraits Place) , 133 Nev. 394, 399 P.3d 359, 360–61 (2017) (recognizing that "the HOA foreclosure sale was an act in violation of the automatic stay, despite the lack of notice of the homeowners' bankruptcy," and that the sale was "invalidated"). When adjudicating various types of state law disputes, Nevada courts consistently consider the voidness of actions taken in violation of a federal bankruptcy stay. See SFR Investments Pool 1, LLC v. U.S. Bank, N.A ., 135 Nev. 346, 449 P.3d 461, 465 (2019) (en banc) (holding that "it was proper of the district court to consider the stay in balancing the equities, as the court must consider all of the circumstances surrounding the sale" because "[t]he fact that the sale was in violation of a bankruptcy stay at the time the sale was held may be relevant to U.S. Bank's failure to act and the sale price," and "it would be reasonable for a lender not to attend a foreclosure sale if it believe[d] that the sale [was] being conducted in violation of a bankruptcy stay"); Gundala v. BAC Home Loans Servicing, LP , 483 P.3d 1121, 2021 WL 1531154, at *1 (Nev. 2021) (unpublished) (concluding that "the HOA recorded a Notice of Delinquent Assessment in March 2011 and a Notice of Default in June 2011, both of which were recorded while the automatic stay was in effect," and "[b]ecause the abovementioned notices were both recorded while the automatic stay was in effect, the district court correctly determined that they were void and that the ensuing HOA foreclosure sale was also void"); NV Eagles, LLC v. Nationstar Mortg., LLC , 462 P.3d 1230, 2020 WL 2527389, at *1 (Nev. 2020) (unpublished) (opining that "[a]lthough appellant contends that the sale did not violate the automatic stay because the...