Wells Fargo Bank, N.A. v. Radecki

• Decision Date: 13 September 2018
• Docket Number: No. 71405,71405
• Citation: 426 P.3d 593
• Parties: WELLS FARGO BANK, N.A., as Trustee ON BEHALF OF the HOLDERS OF the HARBORVIEW MORTGAGE LOAN TRUST MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES 2006-12, Appellant, v. Tim RADECKI, Respondent.
• Court: Nevada Supreme Court

426 P.3d 593

WELLS FARGO BANK, N.A., as Trustee ON BEHALF OF the HOLDERS OF the HARBORVIEW MORTGAGE LOAN TRUST MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES 2006-12, Appellant,

v.Tim RADECKI, Respondent.

No. 71405

Supreme Court of Nevada.

FILED SEPTEMBER 13, 2018

Ballard Spahr LLP and Sylvia O. Semper and Abran E. Vigil, Las Vegas; Ballard Spahr LLP and Anthony C. Kaye, Salt Lake City, Utah, for Appellant.

The Wright Law Group and John Henry Wright, Las Vegas, for Respondent.

BEFORE THE COURT EN BANC.

OPINION

By the Court, STIGLICH, J.:

This appeal requires us to consider the competing interests of the purchaser of a property at a homeowners’ association foreclosure sale and the beneficiary of a deed of trust on that property at the time of the sale. See SFR Invs. Pool 1, LLC v. U.S. Bank, N.A, (SFR I ), 130 Nev. 742, 758, 334 P.3d 408, 419 (2014) (holding that valid foreclosure of an HOA superpriority lien extinguishes a first deed of trust).

After a bench trial, the district court determined that appellant Wells Fargo Bank, N.A.’s deed of trust was extinguished by a valid foreclosure sale. On appeal, Wells Fargo argues that the foreclosure sale should have been invalidated on equitable grounds, the foreclosure sale constituted a fraudulent transfer under the Uniform Fraudulent Transfer Act (UFTA), and that the foreclosure deed failed to transfer ownership of the property.

We disagree on all three points. We agree with the district court’s conclusion that there was no "unfairness or irregularity" in the foreclosure process, see Golden v. Tomiyasu, 79 Nev. 503, 515, 387 P.2d 989, 995 (1963), so the district court correctly rejected Wells Fargo’s equitable argument. UFTA does not apply because regularly conducted, noncollusive foreclosure sales are exempt from that statute. Lastly, we agree with the district court’s conclusion that an irregularity in the foreclosure deed upon sale does not invalidate the foreclosure as a whole. Accordingly, we affirm.

FACTS AND PROCEDURAL HISTORY

This case concerns competing rights to 2102 Logston Drive, North Las Vegas (the Property). In 2006, in exchange for a $196,000 loan, a homeowner encumbered the Property with a Deed of Trust (DOT). That DOT was eventually assigned to appellant Wells Fargo.

The Property is located within the Cambridge Heights planned community (the HOA) and is subject to the HOA’s Covenants, Conditions, and Restrictions (CC&Rs). Those CC&Rs obligated the Property owner to pay monthly assessments and authorized the HOA to impose a lien upon the Property in the event of nonpayment.

By 2012, the homeowner had defaulted on both the loan and the HOA payments. The HOA recorded a Notice of Delinquent Assessment and a Notice of Default. Then, before the HOA recorded a Notice of Foreclosure sale, Wells Fargo sued for judicial foreclosure on the property. Wells Fargo secured a default judgment against both the homeowner and the HOA. The written judgment declared that Wells Fargo’s DOT "is superior to all right, title, interest, lien, equity or estate of the Defendants with the exception of any super priority lien rights held by any Defendant pursuant to NRS 116.3116. "

The HOA then conducted a foreclosure sale pursuant to NRS 116.3116. The winning bidder at that sale was respondent Tim Radecki, who purchased the property for $4,000. The declaration of value associated with the sale indicated that the tax value of the property was $56,197.

Radecki moved to intervene in Wells Fargo’s foreclosure suit. The district court granted that motion and held a bench trial to determine whether Radecki or Wells Fargo had superior title to the Property. In its judgment following trial, the district court rejected Wells Fargo’s arguments as to why the foreclosure sale should be invalidated and held that Wells Fargo’s DOT was extinguished pursuant to SFR Investments Pool 1, LLC v. U.S. Bank, N.A ., 130 Nev. 742, 334 P.3d 408 (2014). Thus, the district court quieted title in favor of Radecki.

Wells Fargo appeals.

DISCUSSION

Wells Fargo raises numerous issues, some of which this court has conclusively decided in our HOA foreclosure jurisprudence.¹ Three of Wells Fargo’s arguments are novel: (1) Wells Fargo argues that the actions of the HOA and the intent of the purchaser at the foreclosure indicate "unfairness or irregularity" in the foreclosure process, rendering the foreclosure invalid, (2) Wells Fargo argues that the foreclosure constituted a "fraudulent transfer" under the Uniform Fraudulent Transfer Act, and (3) Wells Fargo argues that the foreclosure deed failed to convey the property to Radecki.

After a bench trial, this court reviews the district court’s legal conclusions de novo. Weddell v. H20, Inc., 128 Nev. 94, 101, 271 P.3d 743, 748 (2012). The district court’s factual findings will be left undisturbed unless they are clearly erroneous or not supported by substantial evidence. Id.

There was not unfairness or irregularity in the foreclosure process

Wells Fargo argues that the foreclosure sale should be invalidated due to the low purchase price coupled with "evidence of unfairness or irregularity" in the foreclosure process. See Golden v. Tomiyasu, 79 Nev. 503, 515, 387 P.2d 989, 995 (1963). Wells Fargo first argues that the HOA "intentionally evaded the judicial process and went forward with the HOA sale despite defaulting" in Wells Fargo’s judicial foreclosure proceeding. The HOA’s actions, Wells Fargo contends, "suggest[ ] a race to complete a [foreclosure] sale before the [district] Court could issue a foreclosure judgment." This argument ignores the fact that Wells Fargo’s default judgment explicitly stated that Wells Fargo’s DOT was superior to all other interests "with the exception of any super priority lien rights held by any Defendant pursuant to NRS 116.3116." (Emphasis added.) NRS 116.31162 authorized the HOA to nonjudicially foreclose on that superpriority lien. To the extent the HOA "race[d]" to foreclose on that lien, it was entitled to do so.

Wells Fargo additionally argues that Radecki was not a bona fide purchaser (BFP) because he "admittedly had knowledge of Wells Fargo’s competing interest" and "he was aware of the legal and title issues surrounding HOA foreclosure sales." Radecki cannot possibly be a BFP, Wells Fargo argues, because Radecki himself did not believe he was acquiring title to the property. Thus, Wells Fargo concludes, it is unfair to award unencumbered title to Radecki.

We agree with the district court that Radecki had no obligation to establish BFP status. The BFP doctrine provides an equitable remedy to protect innocent purchasers from an otherwise defective sale; it does not provide an equitable basis to invalidate an otherwise valid sale. See 25Corp. v. Eisenman Chem. Co., 101 Nev. 664, 675, 709 P.2d 164, 172 (1985) ("The bona fide doctrine protects a subsequent purchaser’s title against competing legal or equitable claims of which the purchaser had no notice at the time of the conveyance."). "Where the complaining party has access to all the facts surrounding the questioned transaction and merely makes a mistake as to the legal consequences of his act, equity should normally not interfere, especially where the rights of third parties might be prejudiced thereby." Shadow Wood Homeowners Ass’n., Inc. v. N.Y. Cmty. Bancorp, Inc., 132 Nev. 49, 66, 366 P.3d 1105, 1116 (2016) (quotation marks omitted). Given that the foreclosure sale was valid, Radecki’s subjective beliefs as to the effect of the foreclosure sale are irrelevant.

In sum, Wells Fargo has failed to show "evidence of unfairness or irregularity" in the foreclosure process that would invalidate the foreclosure sale on equitable grounds. See Golden, 79 Nev. at 515, 387 P.2d at 995.

A properly conducted NRS Chapter 116 foreclosure sale is not a "fraudulent transfer"

Wells Fargo argues that the foreclosure sale violated NRS Chapter 112, the Uniform Fraudulent Transfer Act (UFTA). "The UFTA is designed to prevent a debtor from defrauding creditors by placing the subject property beyond the creditors’ reach." Herup v. First Boston Fin., LLC, 123 Nev. 228, 232, 162 P.3d 870, 872 (2007). While a "[f]raudulent conveyance under NRS Chapter 112 does not require proof of intent to defraud," the creditor bears the burden of proof to establish that a fraudulent transfer occurred. Sportsco Enters. v. Morris, 112 Nev. 625, 631, 917 P.2d 934, 937 (1996).

Wells Fargo argues that the conveyance was fraudulent under NRS 112.180(1)(b)(1), NRS 112.180(1)(b)(2), and NRS 112.190(1). NRS 112.180(1)(b)(1) does not apply, because there was no evidence that the homeowner "[w]as engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small." Nor is NRS 112.180(1)(b)(2) applicable, because there was no evidence that the homeowner "[i]ntended to incur, or believed or reasonably should have believed that [she] would incur, debts beyond ... her ability to pay as they became due." Wells Fargo’s strongest argument is that the sale violated NRS 112.190(1), which provides in full:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

As relevant here, to succeed under its NRS 112.190(1) UFTA claim, Wells Fargo must show the following: (1) A transfer of an asset occurred, (2) Wells Fargo’s claim preexisted the transfer, (3) the transfer was not for "reasonably equivalent value," and (4) the homeowner was insolvent at the time of the transfer. Id.

Some of these elements are clearly met. As to the second element, Wells Fargo’s DOT constitutes a prior claim on the Property that was transferred via...