Fed. Nat'l Mortg. Ass'n v. Westland Liberty Vill., LLC
| Decision Date | 11 August 2022 |
| Docket Number | 82174 |
| Citation | 515 P.3d 329 |
| Parties | FEDERAL NATIONAL MORTGAGE ASSOCIATION ; and Grandbridge Real Estate Capital, LLC, Appellants, v. WESTLAND LIBERTY VILLAGE, LLC, a Nevada Limited Liability Company; and Westland Village Square, LLC, a Nevada Limited Liability Company, Respondents. |
| Court | Nevada Supreme Court |
Snell & Wilmer LLP and Kelly H. Dove, Nathan G. Kanute, and Bob L. Olson, Las Vegas, for Appellant Federal National Mortgage Association.
Holland & Hart LLP and Joseph G. Went, Lars K. Evensen, and Sydney R. Gambee, Las Vegas, for Appellant Grandbridge Real Estate Capital, LLC.
Campbell & Williams and J. Colby Williams and Philip R. Erwin, Las Vegas; Law Offices of John Benedict and John Benedict, Las Vegas; and Westland Real Estate Group and John W. Hofsaess, Long Beach, California, for Respondents.
Fennemore Craig, P.C., and Leslie Bryan Hart and John D. Tennert, Reno, for Amicus Curiae Federal Housing Finance Agency.
BEFORE THE SUPREME COURT, EN BANC.
This appeal permits us to clarify when a lender or its assignee is entitled to the appointment of a receiver after a borrower defaults on a real property loan agreement. The borrower here owns properties housing multi-family apartment complexes, and the lender observed a significant decrease in occupancy after the borrower assumed ownership. The lender's inspector observed that significant repairs were needed, and the lender demanded deposits into repair and replacement escrow accounts, relying on specific provisions in the loan agreements. The borrower did not make the demanded deposits, which the lender deemed a default under the loan agreements. The lender sued and sought a receiver. The borrower countersued, alleging breach of contract and seeking a preliminary injunction. The district court found that there was no default and issued a wide-ranging preliminary injunction, reaching matters that had been neither briefed nor argued.
We have not previously had cause to interpret NRS 32.260(2)(b) and NRS 107A.260(1)(a)(1), which provide that a lender is entitled to the appointment of a receiver when the borrower agrees to such in the event of a default and, after a default, the lender seeks a receiver in enforcing the loan, NRS 32.260(2), or the property is subject to the assignment of rents, NRS 107A.260(1). As the lender has an entitlement to a receiver in such instances, appointment of a receiver is not subject to the district court's discretion. The agreement itself may state what circumstances constitute a default.
The district court here erred in disregarding the loan agreements’ provisions setting forth what constituted a default. The loan agreements contain clear terms setting forth the parties’ obligations and what constitutes default. The borrower here failed to perform several duties mandated under the loan agreements, including the duty to make the demanded deposits, and this failure constituted default. As the borrower agreed to the provisions in the loan documents stating that the lender may obtain a receiver in the event of default, the lender was entitled to the appointment of a receiver on the borrower's default, and the district court abused its discretion in refusing to appoint one. The district court further abused its discretion in issuing a preliminary injunction because it rested its order on clearly erroneous factual determinations, did not apply the relevant standards for injunctive relief, and failed to recognize the lender's entitlement to a receiver. We accordingly reverse and remand.1
This appeal involves a dispute concerning mortgage loans entered into to finance the purchase of two properties housing multi-family apartment complexes. Appellant Federal National Mortgage Association (Fannie Mae) is the successor-in-interest to the original lender for the loan agreements; appellant Grandbridge Real Estate Capital, LLC, is its loan servicer. Respondents Westland Liberty Village, LLC, and Westland Village Square, LLC (collectively, Westland) are the successors-in-interest to the original borrowers. The predecessor borrowers executed a loan agreement for approximately $9.4 million to finance the purchase of a property known as "Village Square Apartments." The predecessor borrowers executed another mortgage loan agreement for $29 million to purchase "Liberty Village Apartments." The predecessor lender held a note and deed of trust on each property (loan documents). The agreements have materially equivalent operative provisions. The predecessor lender assigned both Village Square and Liberty Village loan documents to Fannie Mae. Westland executed assumption and release agreements to take on the Village Square and Liberty Village loan obligations, including payment and performance obligations, from the original borrowers and guarantors. In doing so, Westland expressly adopted all of the terms and obligations of the loan documents and associated instruments.
Compliance with the provisions of these agreements is at the essence of this dispute. The loan agreements provide that the borrower shall pay the expenses to maintain and repair the property (§ 6.02(b)). The borrower must permit the lender or its agent to inspect the property, subject to routine constraints, such as business hours (§ 6.02(d)). If, in connection with an inspection, the lender determines that the property has deteriorated beyond that of ordinary wear and tear, the lender may obtain a property condition assessment (PCA) at the borrower's expense (§ 6.03(c)). The lender may require additional lender repairs or replacements on the basis of the PCA (§ 6.03(c)).
Additional repair's and deposits
With timely written notice, the lender may require the borrower to make an additional deposit to the replacement reserve account or the repairs escrow account "if Lender determines that the amounts on deposit in either [account] are ... not sufficient to cover the costs for ... Additional Lender Repairs ... or Additional Lender Replacements," pursuant to section 13.02(a)(9) (§ 13.02(a)(4)). Section 13.02(a)(9) provides that the lender may require the borrower to make additional lender repairs or replacements and provides general terms for the lender to disburse from the reserve or escrow accounts to pay for those repairs when all other conditions are met (§ 13.02(a)(9)(B)).
It further provides that "[n]othing in this Loan Agreement shall limit Lender's right to require an additional deposit to the [reserve or escrow accounts]" or to require additional monthly deposits for additional lender repairs or replacements. The borrower may contest any demanded deposit's amount or validity by the appropriate legal process, though the lender may require the borrower to deposit the contested sum (§ 12.02(e)). Whether additional deposits or repairs are warranted generally falls within the lender's discretion throughout the agreement.
The loan agreements set forth numerous automatic default events, including any failure by the borrower to deposit any amount required by the agreement (§ 14.01(a)(1)). In the event of a default, the lender has the option to accelerate the loan and demand payment of all the remaining unpaid balance and any other money due; it may also foreclose (§ 14.02(a)). The lender need not disburse payments for repairs or replacements from the reserve or escrow accounts if there is a default (§§ 13.02(a), 14.02(b)).
Pursuant to the deed of trust, the borrower agrees to assign all rents to the lender. In the event of a default, the lender may request the court to appoint a receiver. If the lender chooses to seek a receiver, the borrower expressly consents to the appointment of a receiver. The original borrowers signed each deed of trust in executing it, and Westland expressly assumed all of the terms of the collected loan documents.
After Westland began operating the apartment complexes, Fannie Mae observed a substantial decrease in occupancy rates and became concerned that this decline resulted from deterioration in the condition of the properties. Fannie Mae inspected the properties’ condition and then retained a third-party inspector to produce a PCA, documenting the repairs needed, for each property. The inspector examined the properties and concluded that Village Square was in substandard condition, Liberty Village was in fair to poor condition, and they required approximately $1.09 million and $1.75 million, respectively, in repairs and replacements.
Fannie Mae's agent sent Westland notices of demand for each property, requiring Westland to deposit an aggregate sum of approximately $2.8 million in the repairs escrow accounts. The notices also increased monthly deposits to the repairs escrow accounts by $9,557. Westland responded that there was no basis to demand the deposit, there was no failure to maintain because the properties were dilapidated when they were acquired, the repairs requested improperly constituted ordinary wear and tear repairs, and Fannie Mae had no right to conduct a PCA. Fannie Mae filed and served notices of default based on Westland's purported failures to maintain the properties and to make the required account deposits.
Fannie Mae petitioned the district court for the appointment of a receiver. In response, Westland moved for a preliminary injunction to enjoin any foreclosure proceedings, opposed the appointment of a receiver, and asserted counterclaims, alleging Fannie Mae breached the loan agreement. Westland named Grandbridge as a third-party defendant, asserting claims against it as Fannie Mae's agent.
The district court held a hearing and expressed doubt that Westland defaulted because Fannie Mae did not show that Westland ceased paying entirely. It found a factual dispute as to the alleged default and found that Westland would suffer irreparable harm in losing the properties by foreclosure. It thus concluded that a preliminary injunction was warranted and that a receiver was not....
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...in its mandate as to ensure that there is no confusion as to what steps must be taken. Cf. Fed. Nat'l Mortg. Ass'n v. Westland Liberty Vill., LLC , 138 Nev. Adv. Op. 57, 515 P.3d 329, 337 (2022) (cautioning district courts, in the context of a preliminary injunction, to exercise care to ens......