Bank of New York Mellon v. Enchantment At Sunset Bay Condominium Association

Decision Date25 June 2021
Docket Number19-17048
PartiesBank 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, and Harold Hill; Nevada Association Services, Inc., Defendants.
CourtU.S. Court of Appeals — Ninth Circuit

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, and Harold Hill; Nevada Association Services, Inc., Defendants.

No. 19-17048

United States Court of Appeals, Ninth Circuit

June 25, 2021


Argued and Submitted November 17, 2020 Pasadena, California

Appeal from the United States District Court No. 2:17-cv-01916-RFB-EJY for the District of Nevada Richard F. Boulware II, District Judge, Presiding

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.

SUMMARY[*]

Nevada Foreclosure Law / Bankruptcy Automatic Stay

The panel reversed the district court's summary judgment that was entered in favor of the 732 Hardy Way Trust, its denial of summary judgment to the Bank of New York Mellon (the "Bank"), and its dismissal of the Bank's claims against a Homeowners Association ("HOA") in a quiet title action brought by the Bank, concerning title to real property in Nevada that was subject to a HOA nonjudicial foreclosure sale.

Harold Hill purchased property at 732 Hardy Way, Mesquite, Nevada. The Bank was a first deed of trust lienholder. In January 2014, Hill fell behind in his HOA dues, and the HOA recorded a notice of delinquent assessment lien in February 2014. In April 2014, Hill filed for Chapter 13 bankruptcy, and an automatic stay went into effect. On July 15, 2014, while Hill's bankruptcy case was pending, the HOA recorded a notice of foreclosure sale, and sold the property to the Trust.

The panel held that the Bank had prudential standing to make the argument that the HOA foreclosure sale occurred in violation of the automatic stay and was thus void. Because the Bank had standing, its interest as a creditor was protected under Nevada law. The panel held further that any HOA foreclosure sale in violation of the automatic bankruptcy was void, and not merely voidable, under Nevada law. The panel concluded that the Bank's interest was superior to the Trust's interest where the Bank provided evidence that: Hill listed the property in his bankruptcy schedules in March 2014; the automatic bankruptcy stay was active through 2017; and the property was auctioned off on September 19, 2014. The panel held that the Bank should receive quiet title to the property under Nevada Revised Statute 40.010.

In his concurring opinion, Judge VanDyke wrote separately to explain further why he thought Judge Forrest's dissent was incorrect. He wrote that underlying the dissent's analysis was the concept that the factual voidness of the foreclosure sale here could only be raised in this state-law action by certain entities, which meant that the sale was only void as to certain entities if they so choose. This is what was usually meant when a transaction was said to be "voidable, not void." The dissent's reliance on a "voidable, not void" rationale was directly at odds with this court's clear authority recognizing that violations of a bankruptcy stay are in fact "void," not voidable. The dissent's assertion that the automatic stay did not protect individual creditors when pursuing claims that were adverse or unrelated to the debtor's estate was not an accurate reflection of this circuit's, or the Supreme Court's, precedent generally.

Dissenting, Judge Forrest would hold that the Bank was not entitled to enforce the automatic stay or seek relief based on a violation of the bankruptcy stay because in seeking relief, the Bank was not acting as a "creditor" within the meaning of the Bankruptcy Code. Specifically, Judge Forrest wrote that the automatic stay did not protect litigants pursuing claims that were adverse or unrelated to the distribution of the debtor's estate. The Bank wanted the foreclosure sale declared void to preserve its lien interest in the subject property, but voiding the foreclosure sale did not advance or preserve the bankruptcy estate, and it had nothing to with the Bank's claim against the debtor or against the estate. Accordingly, the automatic stay did not confer any rights upon the Bank in the context of this case. Judge Forrest disagreed with the majority's conclusion that state law, not federal law, resolved this case. She would hold that the Bank was not within the class of persons entitled to enforce the automatic stay, and therefore, the Bank's quiet title claim was without merit and must be dismissed. Finally, Judge Forrest disagreed with the concurrence's discussion of the void-not-voidable rule.

OPINION

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...

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