Fed. Hous. Fin. Agency, Home Loan Mortg. Corp. v. LN Mgmt. LLC

• Decision Date: 11 March 2019
• Docket Number: Case No.: 2:17-cv-03006-JAD-GWF
• Citation: 369 F.Supp.3d 1101
• Parties: FEDERAL HOUSING FINANCE AGENCY, as Conservator of Federal Home Loan Mortgage Corporation, et al., Plaintiffs v. LN MANAGEMENT LLC, SERIES 2937 BARBOURSVILLE, et al., Defendants
• Court: U.S. District Court — District of Nevada

369 F.Supp.3d 1101

FEDERAL HOUSING FINANCE AGENCY, as Conservator of Federal Home Loan Mortgage Corporation, et al., Plaintiffs

v.LN MANAGEMENT LLC, SERIES 2937 BARBOURSVILLE, et al., Defendants

Case No.: 2:17-cv-03006-JAD-GWF

United States District Court, D. Nevada.

Signed March 11, 2019

Asim Varma, Howard Cayne, Michael A.F. Johnson, Arnold and Porter Kaye Scholer, LLP, Washington, DC, John D. Tennert, Leslie Bryan Hart, Fennemore Craig, P.C., Reno, NV, Gregory L Wilde, Tiffany & Bosco P.A., Las Vegas, NV, for Plaintiffs.

Kerry P. Faughnan, North Las Vegas, NV, for Defendants.

Order Granting in Part Motion to Dismiss and Granting Motion for Summary Judgment on Federal Foreclosure Bar Claims

[ECF No. 29, 31]

Jennifer A. Dorsey, U.S. District Judge

This diversity action seeks to determine the effect of a 2012 nonjudicial foreclosure sale on the deed of trust securing the mortgage on the home. In SFR Investments Pool 1 v. US Bank , the Nevada Supreme Court held that a properly conducted nonjudicial foreclosure sale by a homeowners' association (HOA) to enforce a superpriority lien extinguishes a first deed of trust.¹ The Federal Housing Finance Agency (FHFA) as conservator for Federal Home Loan Mortgage Corporation (better known as Freddie Mac), Freddie Mac itself, and loan servicer U.S. Bank sue LN Management, LLC, Series 2937 Barboursville, who bought the home from the foreclosure-sale purchaser. They seek a declaration that Freddie Mac's deed of trust survived this foreclosure because the Federal Foreclosure Bar in 12 U.S.C. § 4617(j)(3) shielded that interest from extinguishment or because Nevada's foreclosure scheme violated lenders' due-process rights.²

LN Management moves to dismiss these claims as untimely. It argues that these claims are governed by a three-year Nevada state statute of limitations, which expired long before the plaintiffs filed this lawsuit five years and one month after the foreclosure sale recorded.³ Freddie Mac and the FHFA (collectively, the Lenders) oppose the motion and contend that the operable limitations period for their claims is a federal six-year one, making these claims timely.⁴ They also countermove for summary judgment on their claims that are based on the Federal Foreclosure Bar.⁵

I conclude that the FHFA's claims are governed by the federal six-year statute, but the same claims asserted by Freddie Mac and U.S. Bank are time-barred by Nevada's four-year statute of limitations for lienholders' equitable quiet-title suits because these entities do not get the benefit of the federal extender statute that applies to the Agency's claims. I also find that the FHFA has demonstrated that Freddie Mac's deed of trust was saved from extinguishment by the Federal Foreclosure Bar and continues to encumber the property despite the HOA's foreclosure sale. So I grant the motion to dismiss in part, dismissing Freddie Mac and U.S. Bank's claims, and I grant the FHFA partial summary judgment on its claims that are founded on the Federal Foreclosure Bar.

Background

Jia Zhou purchased the home at 2937 Barboursville Ct., in Henderson, Nevada, in 2010, with a mortgage from Linear Financial, LP dba Pardee Home Loans, secured by a deed of trust.⁶ Freddie Mac, who has been under the conservatorship of the FHFA since 2008, acquired ownership of the mortgage on or about March 10, 2011.⁷ The deed of trust has been assigned several times, with U.S. Bank ultimately ending up as its record beneficiary as the servicer for Freddie Mac.⁸ The home is located in the Fairbrook neighborhood and subject to a declaration of covenants, conditions, and restrictions for the Fairbrook HOA, which require the owners of units within this development to pay assessments.⁹

The Nevada Legislature gave HOAs a superpriority lien against residential property for certain delinquent assessments and established in Chapter 116 of the Nevada Revised Statutes a non-judicial foreclosure procedure for HOAs to enforce that lien.¹⁰ When Zhou fell behind on assessments on the Barboursville Court home, the Fairbrook HOA sold it to the Barboursville Court Trust in such a nonjudicial foreclosure sale on October 23, 2012. The foreclosure deed recorded on November 7, 2012.¹¹ The Barboursville Court Trust then quitclaimed the home to LN Management in May 2013.¹² As the Nevada Supreme Court held in SFR Investments Pool 1 v. U.S. Bank in 2014, because NRS 116.3116(2) gives an HOA "a true superpriority lien, proper foreclosure of" that lien under the non-judicial foreclosure process created by NRS Chapters 107 and 116 "will extinguish a first deed of trust."¹³

But the Federal Foreclosure Bar in 12 U.S.C. § 4617(j)(3) creates an exception to that rule.¹⁴ This safeguard is contained in the Housing and Economic Recovery Act (HERA, codified at 12 U.S.C. § 4511 et seq. ), which went into effect in 2008, established the FHFA, and placed Freddie Mac under the agency's conservatorship.¹⁵ Under HERA's Federal Foreclosure Bar, when Freddie Mac is the beneficiary of the deed of trust at the time of the foreclosure and Freddie Mac is under the conservatorship of the FHFA, the deed of trust is not extinguished and instead survives the foreclosure sale unless Freddie Mac affirmatively relinquishes that interest.¹⁶ Because Freddie Mac was in conservatorship at the time of this 2012 foreclosure sale and it contends that it did not affirmatively release its interest in the deed of trust, the Lenders and U.S. Bank filed this action on December 6, 2017, asserting four claims for relief asking this court to declare that Freddie Mac's deed of trust was not extinguished by operation of NRS 116.3116 and continues to encumber the property.¹⁷

LN Management moves to dismiss these claims as untimely.¹⁸ In its four-page motion, LN argues that "[b]ecause the nonjudicial foreclosure process is strictly governed by statute," these claims "are all subject to the three year period of limitation in NRS 11.190(3)(a).¹⁹ It contends that because the Lenders and U.S. Bank waited more than five years after the foreclosure sale to file this suit, all of these claims are time-barred.²⁰

The Lenders oppose the motion to dismiss, arguing that their claims are governed not by NRS 11.190(3)(a)'s three-year deadline, but by the six-year federal statute of limitation that HERA prescribes for contract claims brought by the FHFA as conservator for Freddie Mac, making them timely.²¹ They also countermove for summary judgment on their Federal Foreclosure Bar claims, arguing that HERA's Federal Foreclosure Bar prevented the foreclosure sale from extinguishing Freddie Mac's interest.²² U.S. Bank filed no opposition to LN's motion to dismiss and has not joined in the Lenders'. LN filed neither a reply in support of its motion to dismiss nor an opposition to the motion for summary judgment.²³

Analysis

I. LN's Motion to Dismiss [ECF No. 29]

A statute-of-limitations defense may be raised by a motion to dismiss "if the running of the statute is apparent on the face of the complaint."²⁴ "When a motion to dismiss is based on the running of the statute of limitations, it can be granted only if the assertions of the complaint, read with the required liberality, would not permit the plaintiff to prove that the statute was tolled."²⁵

The Lenders and U.S. Bank plead four causes of action, all seeking a declaration that Freddie Mac's deed of trust continues to encumber the property despite the HOA foreclosure.²⁶ The Lenders brand their suit as a quiet-title action, while LN Management characterizes these causes of action as statutory-based ones. The nature of these claims dictates which statute of limitations applies and whether the decision to wait more than five years to seek a judicial declaration of Freddie Mac's interest bars this action. Because U.S. Bank failed to oppose LN's motion to dismiss, I deem this lack of response "a consent to the granting of the motion" as Local Rule 7-2(d) permits, and I dismiss U.S. Bank's claims on this basis.²⁷ I thus evaluate the motion's merits only for the Lenders' claims.

A. Classifying the Lenders' claims under Nevada law

To evaluate claims, "we must look at the substance of the claims, not just the labels used."²⁸ The general purpose of each of the Lenders' claims is to challenge the impact of the foreclosure sale on the deed of trust. This requested equitable relief makes these claims the type of quiet-title claim recognized by the Nevada Supreme Court in Shadow Wood Homeowners Association, Inc. v. New York Community Bancorp —an action "seek[ing] to quiet title by invoking the court's inherent equitable jurisdiction to settle title disputes."²⁹ The resolution of such a claim is part of "[t]he long-standing and broad inherent power of a court to sit in equity and quiet title, including setting aside a foreclosure sale if the circumstances support" it.³⁰ When brought by lienholders like Freddie Mac, these equitable quiet-title claims are governed by Nevada's catch-all four-year statute of limitations in NRS 11.220.³¹ If the state statute for these claims applies, all of the Lenders' claims are time barred and must be dismissed because they were filed more than four years after the foreclosure sale occurred.

B. The effect of HERA's statute of limitations

The Lenders contend that HERA throws a wrinkle into the characterization of their claims for staleness purposes.³² Section 4617(b)(12) of HERA, entitled "Statute of limitations for actions brought by conservator or receiver," provides "the applicable statute of limitations with regard to any action brought by the Agency as conservator or receiver" but identifies only two categories of claims: contract and tort.³³ The limitations period for "any contract claim" is the longer of six years or "the period applicable under State law"; and for "any tort claim," the deadline is the longer of three years or any applicable state-law period.³⁴ The Lenders contend that HERA's federal limitations scheme rescues their claims from the...