Saticoy Bay LLC v. Wells Fargo Home Mortg.

• Citation: 388 P.3d 970
• Decision Date: 26 January 2017
• Docket Number: No. 68630,68630
• Parties: SATICOY BAY LLC SERIES 350 DURANGO 104, Appellant, v. WELLS FARGO HOME MORTGAGE, A DIVISION OF WELLS FARGO BANK, N.A., Respondent.
• Court: Supreme Court of Nevada

388 P.3d 970

SATICOY BAY LLC SERIES 350 DURANGO 104, Appellant,
v.
WELLS FARGO HOME MORTGAGE, A DIVISION OF WELLS FARGO BANK, N.A., Respondent.

No. 68630

Supreme Court of Nevada.

Filed January 26, 2017

Kim Gilbert Ebron and Jacqueline A. Gilbert, Las Vegas; Law Offices of Michael F. Bohn, Esq., Ltd., and Michael F. Bohn, Las Vegas, for Appellant.

Snell & Wilmer, LLP, and Andrew M. Jacobs and Kelly H. Dove, Las Vegas, for Respondent.

BEFORE THE COURT EN BANC.¹

OPINION

By the Court, PARRAGUIRRE, J.:

NRS 116.3116 –.31168² grant a homeowners' association (HOA) a superpriority lien for certain unpaid assessments and allow an HOA to nonjudicially foreclose on such a lien if specific requirements are met. In this appeal, we must determine whether these statutes violate a first security interest holder's due process rights. We hold that neither the HOA's nonjudicial foreclosure, nor the Legislature's enactment of the statutes, constitute state action. Therefore, the statutes do not implicate due process. Additionally, we consider whether the extinguishment of a subordinate deed of trust through an HOA's nonjudicial foreclosure violates the Takings Clauses of the United States and Nevada Constitutions. We hold it does not, and we therefore reverse the district court's order and remand for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

Nonparties to this appeal Roy and Shirley Senholtz took out an $81,370 loan from respondent Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A. (Wells Fargo) in order to refinance their mortgage on property located in Summerlin, Nevada. Wells Fargo's loan was secured by a deed of trust on the property, and the property was governed by an HOA's covenants, conditions,

388 P.3d 972

and restrictions (CC&Rs). The Senholtzes subsequently failed to pay their HOA dues and mortgage, and both Wells Fargo and the HOA recorded notices of default and election to sell. Thereafter, the HOA conducted a nonjudicial foreclosure sale, wherein the property was sold to appellant Saticoy Bay LLC Series 350 Durango 104 (Saticoy Bay) for $6,900.

Saticoy Bay filed a complaint seeking an injunction preventing Wells Fargo from foreclosing on the property and a declaration that it was the rightful owner of the property, free and clear from any encumbrances or liens. Wells Fargo filed a motion to dismiss, arguing (1) NRS 116.3116 et seq. violate the Due Process Clause and the Takings Clause of both the United States and Nevada Constitutions; (2) this court's interpretation of NRS 116.3116 et seq. in SFR Investments Pool 1 , LLC v. U.S. Bank, N.A. , 130 Nev. ––––, ––––, 334 P.3d 408 (2014), conflicts with public policy; and (3) the purchase price of the property was commercially unreasonable. The district court held that the statutes violated Wells Fargo's due process rights and granted the motion; the district court did not address Wells Fargo's other arguments. Saticoy Bay now appeals the district court's order.

DISCUSSION

On appeal, Saticoy Bay argues the foreclosure statutes do not violate a first security interest holder's due process rights. We also consider Wells Fargo's argument that the foreclosure statutes violate the Takings Clauses of the United States and Nevada Constitutions. See Tam v. Eighth Judicial Dist. Court , 131 Nev. ––––, ––––, 358 P.3d 234, 238–39 (2015) ("Although this court would not normally address an issue that the district court declined to consider and develop the factual record, this court can consider constitutional issues for the first time on appeal."). We review the district court's legal conclusions, such as the constitutionality of a statute, de novo. Buzz Stew, LLC v. City of N. Las Vegas , 124 Nev. 224, 228, 181 P.3d 670, 672 (2008) ; Silvar v. Eighth Judicial Dist. Court , 122 Nev. 289, 292, 129 P.3d 682, 684 (2006).

Nevada's superpriority lien statutes do not violate a first security interest holder's due process rights

Wells Fargo argues that the foreclosure procedures specified in NRS 116.3116 et seq. are facially unconstitutional because they do not require an HOA to give a first security interest holder actual notice of a foreclosure that, once conducted, may extinguish the security interest. Cf. SFR Investments Pool 1 , 130 Nev. at ––––, 334 P.3d at 419 (" NRS 116.3116(2) gives an HOA a true superpriority lien, proper foreclosure of which will extinguish a first deed of trust."). Saticoy Bay argues that an HOA's nonjudicial foreclosure does not violate due process because (1) no state actor participates in an HOA's nonjudicial foreclosure, and (2) NRS 116.31168 incorporates the notice requirements set forth in NRS 107.090.

The Due Process Clauses of the United States and Nevada Constitutions protect individuals from state actions that deprive them of life, liberty, or property without due process of law. U.S. Const. amend. XIV, § 1 ; Nev. Const. art. 1, § 8 (5); see also Lugar v. Edmondson Oil Co. , 457 U.S. 922, 936, 102 S.Ct. 2744, 73 L.Ed.2d 482 (1982). The United States Supreme Court has provided a two-part test for determining whether the deprivation of a property interest is the result of state action. See Lugar , 457 U.S. at 937, 102 S.Ct. 2744. First, it must be determined whether "the deprivation [was] caused by the exercise of some right or privilege created by the State." Id. Second, it must be determined whether "the party charged with the deprivation [is] a person who may fairly be said to be a state actor."³ Id.

388 P.3d 973

The State created the HOA's superpriority lien, as well as its right to conduct a nonjudicial foreclosure upon default. See NRS 116.3116 et seq. In addition, Wells Fargo's security interest was extinguished because the HOA exercised its statutory right to conduct a nonjudicial foreclosure. Therefore, the first element of the Lugar test is satisfied. However, it must still be determined whether "the party charged with the deprivation" may be characterized as a state actor.

We conclude that an HOA acting pursuant to NRS 116.3116 et seq. cannot be deemed a state actor. The United States Supreme Court has held that "[a]ction by a private party pursuant to [a] statute, without something more , [is] not sufficient to justify a characterization of that party as a ‘state actor.’ " Lugar , 457 U.S. at 939, 102 S.Ct. 2744 (emphasis added); see also Am. Mfrs. Mut. Ins . Co . v. Sullivan , 526 U.S. 40, 52, 119 S.Ct. 977, 143 L.Ed.2d 130 (1999) ("Action taken by private entities with the mere approval or acquiescence of the State is not state action."). Several courts have recognized "that nonjudicial foreclosure statutes do not involve significant state action" so as to implicate due process. See Charmicor, Inc. v. Deaner , 572 F.2d 694, 696 (9th Cir. 1978) (holding that Nevada's nonjudicial foreclosure procedures regarding a deed of trust do not amount to state action); see also Levine v. Stein , 560 F.2d 1175, 1176 (4th Cir. 1977) (same with regard to Virginia's nonjudicial foreclosure procedures); see also Northrip v. Fed . Nat'l Mortg. Ass'n , 527 F.2d 23, 28–29 (6th Cir. 1975) (finding no state action in a nonjudicial foreclosure, notwithstanding the fact that the sheriff conducted the foreclosure and the deed had to be registered with the county).

Additionally, we reject Wells Fargo's argument that the Legislature may be charged with the deprivation because it enacted NRS 116.3116 et seq. As stated previously, the first prong of the Lugar test identifies whether the state created a right or privilege that caused the deprivation. However, once this inquiry is satisfied, the analysis shifts to whether the procedures enacted by the state involve some form of government action. See L...