U.S. Bank, Nat'l Ass'n v. Res. Grp., LLC

444 P.3d 442

U.S. BANK, NATIONAL ASSOCIATION ND, a National Association, Appellant,

v.RESOURCES GROUP, LLC, Respondent.

No. 74575

Supreme Court of Nevada.

FILED JULY 03, 2019

Eglet Adams and Thomas Neal Beckom, Las Vegas; McCarthy & Holthus, LLP, and Kristin A. Schuler-Hintz, Las Vegas, for Appellant.

Law Offices of Michael F. Bohn, Ltd., and Michael F. Bohn, Henderson, for Respondent.

BEFORE PICKERING, PARRAGUIRRE and CADISH, JJ.

OPINION

By the Court, PICKERING, J.:

This is a homeowners' association (HOA) lien foreclosure dispute. The HOA did not give the first deed of trust holder the notice of default Nevada law requires to foreclose a superpriority lien. Despite this failure, the district court held that the lien foreclosure sale extinguished the first deed of trust and quieted title in favor of the foreclosure sale buyer’s successor. The district court found the first deed of trust holder was not entitled to notice at the address specified in the deed of trust, which was error. We vacate and remand for the district court to decide whether, given this notice defect, the first deed of trust holder deserves relief from the sale.

I.

Appellant U.S. Bank held a note secured by a publicly recorded first deed of trust on a home in a Nevada common interest community. The homeowner/borrower defaulted on his HOA dues, whereupon the HOA initiated lien foreclosure proceedings under NRS Chapter 116.¹ The HOA’s agent, Alessi & Koenig, gave the homeowner proper notice of default and notice of sale and attempted to give U.S. Bank notice of default and notice of sale as well. But Alessi & Koenig misread U.S. Bank’s deed of trust and sent the notice of default to another, unaffiliated entity, which evidently did not forward it to U.S. Bank. As a result, U.S. Bank did not receive the notice of default. Alessi & Koenig’s records suggest it mailed the notice of sale, as distinguished from the notice of default, to U.S. Bank at the address specified for it in the deed of trust, but U.S. Bank’s files do not show that it received either the notice of default or the notice of sale.

Alessi & Koenig set the HOA lien foreclosure sale to occur 33 days after it recorded the notice of sale. When no one appeared at the sale, Alessi & Koenig orally continued it for approximately 60 days. Neither the homeowner nor U.S. Bank attended the rescheduled sale. Respondent Resources Group, LLC’s principal, Iyad Eddie Haddad, acquired the property at the rescheduled sale for $5,331. The district court did not make a finding as to the property’s fair market value, but the record suggests the bid price represented 10% to 15% of the property’s fair market value. Haddad initially took title in the name of a trust he had created to acquire this particular property, then had the trust transfer the property to Resources Group.

The homeowner passed away, and his estate defaulted on the loan the U.S. Bank deed of trust secured. Several months after the HOA lien foreclosure sale, U.S. Bank commenced judicial foreclosure proceedings against the homeowner’s estate on its deed of trust. Later, after it discovered the HOA sale, U.S. Bank added Resources Group as a defendant. Asserting that the HOA lien foreclosure sale had extinguished U.S. Bank’s first deed of trust, Resources Group answered and counterclaimed for a judgment quieting title in itself.

The district court conducted a bench trial and ruled for Resources Group. It held that the HOA lien foreclosure sale extinguished U.S. Bank’s deed of trust, leaving U.S. Bank nothing to judicially foreclose. The district court reasoned that U.S. Bank was not entitled to notice of default because it had not requested it from the HOA and that, alternatively, Alessi & Koenig gave adequate notice, even though the notice did not reach U.S. Bank. U.S. Bank appeals.

II.

U.S. Bank presses us to invalidate the HOA foreclosure sale because the person conducting the sale, Alessi & Koenig, failed to mail it the notice of default at the address specified for it in its deed of trust as NRS 116.31168 and NRS 107.090 require. U.S. Bank further argues that the notice defect renders the sale void under Title Insurance & Trust Co. v. Chicago Title Insurance Co ., 97 Nev. 523, 634 P.2d 1216 (1981), or at least voidable under Golden v. Tomiyasu , 79 Nev. 503, 387 P.2d 989 (1963), and its progeny. We review the district court’s legal conclusions de novo but give deference to its factual findings unless they are clearly erroneous or not supported by substantial evidence. Wells Fargo Bank, N.A. v. Radecki, 134 Nev. Adv. Op. 74, 426 P.3d 593, 596 (2018).

A.

1.

The district court decided this case before we decided SFR Investments Pool 1, LLC v. Bank of New York Mellon , 134 Nev. Adv. Op. 58, 422 P.3d 1248 (2018) ( SFR 3 ). NRS Chapter 116 protects homeowners by requiring a foreclosing HOA to provide the homeowner a 90-day notice of default, followed by a separate notice of sale, before an HOA lien foreclosure sale can proceed. NRS 116.31162(1)(c) ; NRS 116.311635. In SFR 3 , this court considered a certified question from Nevada’s federal district court asking whether these statutory protections extend to a first deed of trust holder who fails to request notices of default and of sale from the HOA. 422 P.3d at 1249. We answered the certified question "yes." Id.

NRS 116.3116(2)(b) establishes a split-lien scheme that subordinates the first deed of trust to the superpriority portion of an HOA’s lien. SFR Invs. Pool 1, LLC v. U.S . Bank, N.A., 130 Nev. 742, 745, 334 P.3d 408, 411 (2014). NRS 116.31168 incorporates the notice requirements of NRS 107.090(3)(b) and (4), which mandate that notice of default and notice of sale go to "[e]ach ... person with an interest whose interest or claimed interest is subordinate" to the lien being foreclosed, with or without a request therefor. Taken together, these statutes require an HOA seeking to foreclose a superpriority lien to send the holder of a recorded first deed of trust notices of default and of sale, even though the deed of trust holder has not formally requested them. SFR 3, 422 P.3d at 1251-53. Under SFR 3 , the district court erred when it ruled that U.S. Bank was not entitled to notice of default because it had not requested it.

2.

When this court answers a certified question from a federal court, its "role is limited to answering the question[ ] of law posed to it." In re Fontainebleau Las Vegas Holdings, 127 Nev. 941, 955, 267 P.3d 786, 794 (2011). "[T]he certifying court retains the duty to determine the facts and to apply the law provided by the answering court to those facts." Id. The certification order in SFR 3 only asked whether NRS 116.31168 and NRS 107.090 require an HOA to provide notice of default and notice of sale to a first deed of trust holder absent a formal request therefor. SFR 3 , 134 Nev. Adv. Op. 59 n.5, 422 P.3d 1253 n.5. The order did not include any facts suggesting notice had been attempted but failed. As a result, SFR 3 did not consider the mechanics of how, without a formal request for notice, a foreclosing HOA should determine the address to which to send notice.

As SFR 3 holds, NRS 116.31168(1) requires an HOA foreclosure sale to be conducted, insofar as a first deed of trust holder is concerned, "as if a deed of trust were being foreclosed." If U.S. Bank had filed a request for notices of default and sale under NRS 107.090(2), it would have been entitled to receive notice of default at the address specified in the request but it did not. Absent specific request, when a deed of trust is foreclosed, the notices of default and sale must be mailed to subordinate lienholders in a manner consistent with NRS 107.080, which sets forth the procedure for mailing notices to the property owner. See NRS 107.090(1), (3), and (4).² In turn, NRS 107.080(3) and (4) (2010) (amended by 2019 Nev. Stat., eh. 238, § 9 (S.B. 382)), require the notice of default to be mailed to the property owner’s current address "if known" and the notice of sale to be mailed to the property owners' "last known address."

As noted, U.S. Bank did not file a request for notice. Its publicly recorded deed of trust states that any required notice "shall be given by delivering it or by mailing it by first class mail to the appropriate party’s address on page 1." Page 1, paragraph 1 of the deed of trust is entitled "DATE AND PARTIES" and generically lists three parties: "GRANTOR," "TRUSTEE," and "LENDER." For the Lender, it supplies the following name and address:

LENDER:

U.S. Bank National Association ND,

a national banking association organized under

the laws of the United States

4325 17th Avenue SW

Fargo, ND 58103

Paragraph 2 confirms the "Lender," U.S. Bank, is the beneficiary of the deed of trust.

U.S. Bank’s deed of trust provided Alessi & Koenig with a "known address" to which to send the notice of default, but Alessi & Koenig did not follow the instructions the deed of trust gave. Instead, Alessi & Koenig mailed the notice of default to a "return to" name and address appearing at the top left of the deed of trust opposite the recorder’s stamp. U.S. Bank established through uncontroverted testimony at trial that it was not affiliated with the "return to" entity and did not receive the notice of default.

On this record, the district court clearly erred when it found that Alessi & Koenig gave U.S. Bank adequate notice of default. Since the HOA was foreclosing both the superpriority and subpriority portions of its lien, notice of default needed to go to "the holder of the first security interest as a subordinate interest." SFR 3 , 422 P.3d at 1252. A trustee or other person conducting a foreclosure sale must send notice of default to each person entitled to it at the address the recorded documents provide for that person (or in some instances, if different, their known or last known address). See Title Ins. & Tr ., 97 Nev. at 525-26, 634 P.2d at 1218. To give statutorily compliant notice, Alessi & Koenig needed to send the...