Fed. Home Loan Mortg. Corp. v. SFR Invs. Pool 1, LLC

Decision Date25 June 2018
Docket NumberNo. 16-15962,16-15962
Citation893 F.3d 1136
Parties FEDERAL HOME LOAN MORTGAGE CORPORATION; Federal Housing Finance Agency, As Conservator of Freddie Mac; Federal National Mortgage Association, Plaintiffs-Appellees, v. SFR INVESTMENTS POOL 1, LLC, Defendant-Appellant, and Nevada New Builds, LLC; Las Vegas Development Group, LLC, Defendants.
CourtU.S. Court of Appeals — Ninth Circuit

Karen L. Hanks (argued), Jesse N. Panoff, Diana Cline Ebron, Jacqueline A. Gilbert, and Howard C. Kim, Kim Gilbert Ebron, Las Vegas, Nevada; for Defendant-Appellant.

Michael A.F. Johnson (argued), Matthew J. Oster, Elliott C. Mogul, Dirk C. Phillips, Asim Varma, and Howard N. Cayne, Arnold & Porter Kaye Scholer LLP, Washington, D.C.; John D. Tennert III and Leslie Bryan Hart, Fennemore Craig P.C., Reno, Nevada; Michael W. Stark, Tennille J. Checkovich, and John H. Maddock III, McGuireWoods LLP, Richmond, Virginia; Robin E. Perkins and Amy Sorenson, Snell & Wilmer, Salt Lake City, Utah; for Plaintiffs-Appellees.

Before: M. Margaret McKeown and Kim McLane Wardlaw, Circuit Judges, and Gary S. Katzmann,* Judge.


Opinion by Judge Katzmann:

The economic downturn following the subprime mortgage crisis of 2007 pushed to near default two government-sponsored enterprises that were heavily exposed to the housing market. The Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac," collectively, with Fannie Mae, "the Enterprises") suffered a severe drop in the value of their mortgage portfolios, which previously comprised nearly half of the United States mortgage market and totaled approximately $5 trillion. In response, the United States government deployed numerous measures to keep the Enterprises afloat and combat further systemic breakdown in the financial and housing markets. Among those was Congress’ passage of the Housing and Economic Recovery Act of 2008 ("HERA"), Pub. L. No. 110-289, 122 Stat. 2654 (codified as amended at 12 U.S.C. § 4511 et seq. ). HERA established an independent agency known as the Federal Housing Finance Agency ("FHFA" or "the Agency") to be the regulator of the Enterprises and the twelve Federal Home Loan Banks. Exercising a power provided by that statute, on September 6, 2008, FHFA’s Director placed the Enterprises under the Agency’s conservatorship.

This case concerns several provisions of HERA, and poses the following questions: can FHFA, as conservator, "succeed to" ownership of the mortgages that were securitized by the Enterprises pursuant to 12 U.S.C. § 4617(b)(2)(A), when those mortgages are also "held in trust"? Does 12 U.S.C. § 4617(j)(3) ("Federal Foreclosure Bar"), which provides that property of an entity in FHFA conservatorship is not "subject to ... foreclosure ... without the consent of the Agency," preempt a Nevada statute, Nev. Rev. Stat. § 116.3116 ("Nevada Foreclosure Statute"), that grants homeowners’ associations superpriority liens on real property under certain circumstances? Further, if FHFA has not consented to a non-judicial foreclosure sale of a property in which an entity in conservatorship holds an interest, and seeks quiet title in that property subsequent to the sale, has FHFA thereby deprived the property buyer of due process?

Defendant SFR Investments Pool 1, Inc. ("SFR") owns several pieces of real property in Nevada. Five of them ("the Properties") are at issue in this case. The Properties were sold to SFR by Nevada homeowners’ associations ("HOAs") following foreclosures on liens for unpaid association dues. Plaintiffs FHFA and the Enterprises sued SFR in the United States District Court for the District of Nevada, seeking a declaration that " 12 U.S.C. § 4617(j)(3) preempts any Nevada law that would permit a foreclosure on a superiority lien to extinguish a property interest of Fannie Mae or Freddie Mac while they are under FHFA’s conservatorship," that "the HOA Sale did not extinguish the Enterprises’ interest in the Properties and thus did not convey the Properties free and clear to any Defendants," and that "title to the Properties is quieted in either Fannie Mae’s or Freddie Mac’s favor insofar as the Defendants’ interest, if any, is subject to the interest of the Enterprises or, if applicable, the interest of the Enterprises’ successors." The district court granted PlaintiffsMotion for Summary Judgment, and denied SFR’s Motion to Dismiss. SFR timely appealed. We affirm.


The facts relevant to the instant proceeding were recited by the district court in its opinion, and are not challenged by either party.

The Properties and the Mortgage Loans they Secure

Four of the Properties are located in Las Vegas, Nevada, and the fifth is located in Henderson, Nevada. Each of the Properties is located in a different HOA community. The Properties’ original owners had mortgage loans on their respective homes. Those loans were secured by the homes. Either Fannie Mae or Freddie Mac purchased the mortgage loans in 2006, and the respective Enterprise has retained ownership since. Each loan is evidenced by a promissory note and a deed of trust, both of which came into the respective Enterprise’s possession upon purchase of the mortgage loan.

The Enterprises and Securitized Mortgage Loans

"Congress created Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) to foster the secondary market for home mortgages." City of Spokane v. Fed. Nat. Mortg. Ass’n , 775 F.3d 1113, 1114 (9th Cir. 2014). The Enterprises do not themselves originate loans in the primary market, and their charters permit only secondary market functions. See Federal National Mortgage Association Charter Act, 68 Stat. 612 (1954) (codified as amended at 12 U.S.C. § 1716 et seq. ) (reestablishing Fannie Mae as a mixed public-private corporation); Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 84 Stat. 450 (codified as amended at 12 U.S.C. § 1451 et seq. ) (chartering Freddie Mac); see generally Perry Capital LLC v. Mnuchin , 864 F.3d 591, 599–601 (D.C. Cir. 2017) (explaining history and purpose of the Enterprises); Lightfoot v. Cendant Mortg. Corp. , ––– U.S. ––––, 137 S.Ct. 553, 196 L.Ed.2d 493 (2017) (providing history of Fannie Mae’s evolution from public agency to private government-sponsored entity). Essentially, the Enterprises exist in order to facilitate liquidity in the mortgage loan market, and thereby distribute the investment capital available for residential mortgage financing. City of Spokane , 775 F.3d at 1116 ; 12 U.S.C. §§ 1451, 1716 ; see Fed. Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc. , 873 F.3d 85, 105 (2d Cir. 2017).

In the secondary mortgage market, existing mortgage loans are bought, sold, and securitized. Perry Capital , 864 F.3d at 599. The Enterprises thus continually purchase residential mortgage loans secured by property throughout the nation, and securitize those mortgage loans. Id. ; see Lightfoot , 137 S.Ct. at 557.

To securitize mortgage loans, and thereby create mortgage-backed securities, the Enterprises place the purchased loans they own into pools and issue certificates entitling the certificate-holders to a contractually specified share of payments borrowers make. Herron v. Fannie Mae , 861 F.3d 160, 163 (D.C. Cir. 2017) ; Nomura Holding , 873 F.3d at 105. The Enterprises customarily perform this securitization by placing mortgage loans into common-law trusts, of which the relevant Enterprise is the trustee.

Passage of HERA and Relevant Provisions

From 2007 through 2008, housing prices fell rapidly as the subprime mortgage and financial crises developed. Meanwhile, interest rates on adjustable-rate mortgages rose. These factors, along with an overabundance of subprime mortgage lending and shoddy underwriting practices, resulted in a glut of homeowners who could not make their mortgage loan payments. Defaulting on mortgage loans thus became an attractive option for many homeowners. Each default and resulting foreclosure sale depressed the prices of nearby homes, promoting a vicious downward spiral in the housing market. See Nomura Holding , 873 F.3d at 106–08 (providing a history of the housing and financial crises).

During the 2000s, the Enterprises, as major players in the United States housing market, purchased these risky mortgage loans, and thus exposed themselves to the eventual downturn in the housing market. Herron , 861 F.3d at 163. Overall, in the lead up to 2008, the Enterprises’ mortgage portfolios had a combined value of $5 trillion and accounted for nearly half of the United States mortgage market. Perry Capital , 864 F.3d at 599. The Enterprises subsequently suffered a severe drop in the value of their mortgage portfolios and were pushed to the brink of default. Id. ; Herron , 861 F.3d at 163.

As noted, Congress, concerned for the Enterprises’ financial condition and that their default would imperil the ailing national economy, passed HERA, which became law in July 2008. See Nomura Holding , 873 F.3d at 108 ; Perry Capital , 864 F.3d at 599. Several HERA subsections are immediate to the issues in this case. HERA established FHFA as the Enterprises’ regulator under § 4511(a) - (c). Section 4617(a)(2) authorizes FHFA to place the Enterprises into conservatorship "for the purpose of reorganizing, rehabilitating, or winding up [their] affairs."

Section 4617(b) covers "Powers and duties of the Agency as conservator or receiver." Section 4617(b)(2) refers to "General powers." Relevant here, § 4617(b)(2)(A) provides that FHFA "shall, as conservator or receiver, and by operation of law, immediately succeed to ... all rights, titles, powers, and privileges of the regulated entity ... with respect to [its] assets."

Next, § 4617(b)(19) covers "General exceptions." As relevant to the parties’ arguments here, § 4617(b)(19)(B)(i) specifies that "[a]ny...

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