U.S. Bank, N.A. v. White Horse Estates Homeowners Ass'n

• Decision Date: 08 February 2021
• Docket Number: No. 19-17033,19-17033
• Citation: 987 F.3d 858
• Parties: U.S. BANK, N.A., TRUSTEE FOR BANC OF AMERICA FUNDING CORPORATION MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-F, Plaintiff-Counter-Defendant-Appellant, v. WHITE HORSE ESTATES HOMEOWNERS ASSOCIATION, Defendant-Appellee, SFR Investments Pool 1, LLC, Defendant-Counter-Claimant-Cross-Claimant-Appellee, v. Meridias Capital, Inc.; Mat Holdings, LLC, Cross-Claim-Defendants.
• Court: U.S. Court of Appeals — Ninth Circuit

987 F.3d 858

U.S. BANK, N.A., TRUSTEE FOR BANC OF AMERICA FUNDING CORPORATION MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-F, Plaintiff-Counter-Defendant-Appellant,

v.WHITE HORSE ESTATES HOMEOWNERS ASSOCIATION, Defendant-Appellee,SFR Investments Pool 1, LLC, Defendant-Counter-Claimant-Cross-Claimant-Appellee,

v.Meridias Capital, Inc.; Mat Holdings, LLC, Cross-Claim-Defendants.

No. 19-17033

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 29, 2020 Portland, Oregon

Filed February 8, 2021

OPINION

GRABER, Circuit Judge:

Under Nevada law, a court has equitable discretion to set aside a valid foreclosure sale only if fraud, unfairness, or oppression affected the sale. In this case, a mortgage-savings clause in the applicable covenants, conditions, and restrictions ("CC&Rs") provided—contrary to Nevada law—that any lien for unpaid assessments would be subordinate to the first deed of trust. The clause was void as a matter of law, and no evidence suggests that anyone relied on the clause or that the clause affected the sale in any way. Plaintiff U.S. Bank nevertheless argues that the clause, by itself, constitutes unfairness that affected the sale. The district court disagreed and granted summary judgment to Defendants White Horse Estates Homeowners Association ("HOA") and SFR Investments Pool 1, LLC. Reviewing de novo, CitiMortgage, Inc. v. Corte Madera Homeowners Ass'n , 962 F.3d 1103, 1106 (9th Cir. 2020), we agree with the district court that, because the clause did not affect the sale, the sale could not be set aside. Accordingly, we affirm.

FACTUAL AND PROCEDURAL HISTORY

In 2005, Tricia Thoen purchased a house within the White Horse Estates development in Las Vegas, Nevada. Thoen financed the purchase with a mortgage of more than $400,000, secured by a first deed of trust. In 2006, Thoen transferred her interest in the property to MAT Holdings, LLC ("MAT").

At all relevant times, the HOA maintained some amenities that were held in common by property owners within the development. Property owners such as MAT were subject to the HOA's CC&Rs, including a requirement to pay monthly assessments. MAT soon fell behind on payments to the HOA.

Although the HOA's monthly dues were tiny compared to the amount of the mortgage, Nevada law at the time¹ provided homeowners associations with a powerful tool to incentivize payments and, if necessary, to collect any deficient payments. In particular, Nevada law permitted a homeowners association to place a lien on the property for any delinquent payments. See generally Bank of America, N.A. v. Arlington W. Twilight Homeowners Ass'n , 920 F.3d 620, 621–22 (9th Cir. 2019) (per curiam). Any portion of the lien that consisted of the last nine months of unpaid monthly assessments, or any unpaid maintenance or nuisance-abatement charges, had "superpriority" status over all other liens, including the first deed of trust. Id. at 622. If the homeowners association conducted a foreclosure sale on the lien and complied with statutory procedural requirements, the sale extinguished the first deed of trust. Id.

In 2010, MAT remained behind on payments, and the HOA recorded a "notice of delinquent assessment" lien. Someone (the record does not disclose who) paid the full amount of the deficiency, and the HOA released the lien.

But MAT fell behind on payments to the HOA again. In 2011, the HOA recorded a second lien. In 2012, the HOA began the foreclosure process by recording a notice of default and election to sell, which stated that MAT owed a total of $3,854.72. The servicer of the loan at the time, Bank of America, N.A., paid the full amount of $3,854.72, thus preserving the first deed of trust. In August 2012, Bank of America assigned the first deed of trust to U.S. Bank.

MAT then fell behind on payments to the HOA for a third time. In 2013, the HOA recorded a third lien. Later that year, the HOA recorded a notice of default and election to sell, which stated that MAT owed a total of $2,740.49. U.S. Bank took no action to preserve the first deed of trust. At a foreclosure sale on November 1, 2013, SFR bid the highest amount, $25,000. The recorded foreclosure deed estimated the value of the property as $308,823. The foreclosure sale complied with all statutory requirements, and a portion of the lien had superpriority status. Pursuant to Nevada law, the sale thus extinguished the first deed of trust.

U.S. Bank then brought this action under the district court's diversity jurisdiction, asking the district court to set aside the sale as a matter of equity. SFR filed counterclaims against U.S. Bank and other entities, seeking to quiet title in its favor. The district court granted summary judgment to Defendants, quieting title in SFR's favor and declining to set aside the sale. U.S. Bank timely appeals.

DISCUSSION

A. Principles of Diversity Jurisdiction

The primary question in this case is one of state law: whether the mortgage-savings clause in the CC&Rs constituted unfairness that affected the sale such that the district court had equitable discretion to set aside the foreclosure sale. In a diversity case, the published decisions of the Nevada Supreme Court bind federal courts as to the substance of Nevada law. Albano v. Shea Homes Ltd. P'ship , 634 F.3d 524, 530 (9th Cir. 2011). Here, though, the Nevada Supreme Court has not addressed squarely, in any published decision, the effect of a mortgage-savings clause by itself. Our role is thus to "predict how the state high court would resolve" the question in a published decision. Id. (internal quotation marks omitted).

As we explain in detail, below, the Nevada Supreme Court has held in several unpublished decisions that a mortgage-savings clause, by itself, does not constitute unfairness that affects a sale. Our cases do not resolve the appropriate level of deference that we must give to unpublished decisions of a state's highest court. At a minimum, we "may consider" those decisions because they may "lend[ ] support" to a conclusion as to what the Nevada Supreme Court would hold in a published decision.² See Emps. Ins. of Wausau v. Granite State Ins. Co. , 330 F.3d 1214, 1220 n.8 (9th Cir. 2003) (holding that we may consider unpublished decisions of a state's intermediate appellate court). We need not, and do not, decide precisely how much weight to give unpublished decisions of the Nevada Supreme Court. As we explain below, under any standard of deference, or even no deference at all, we readily predict that the Nevada Supreme Court would adhere to its unpublished rulings on the disputed point.

B. The Mortgage-Savings Clause

Under Nevada law, courts retain discretion to set aside a foreclosure sale if two circumstances are present: (1) an unreasonably low sales price, and (2) fraud, unfairness, or oppression that affected the sale. Nationstar Mortg., LLC v. Saticoy Bay LLC Series 2227 Shadow Canyon , (Shadow Canyon ) 133 Nev. 740, 405 P.3d 641, 648 (2017). The two factors work together: a greater disparity in purchase price relative to market value requires only slight evidence of unfairness that affected the sale. Id. But "mere inadequacy of price is not in itself sufficient to set aside the foreclosure sale." Id. "The party seeking to set aside the sale on equitable grounds bears the burden to produce evidence showing that the sale was affected by fraud, unfairness, or oppression that would justify setting aside the sale." Res. Grp., LLC v. Nev. Ass'n Servs. , 135 Nev. 48, 437 P.3d 154, 160 (2019) (en banc) (brackets and internal quotation marks omitted). If the record contains "no evidence that the sale was affected by fraud, unfairness, or oppression, then the sale cannot be set aside regardless of the inadequacy of price." Shadow Canyon , 405 P.3d at 648–49.

The Nevada Supreme Court has emphasized that any fraud, unfairness, or oppression is irrelevant if it did not affect the sale: "a court may set the sale aside" only "if the totality of the circumstances demonstrates that the sale itself was affected by ‘fraud, unfairness, or oppression.’ " Res. Grp. LLC , 437 P.3d at 160–61. Hence, in Resources Group , even though the trial court found that many equities favored the bank, the Nevada Supreme Court reversed the trial court's decision to set aside the sale because the bank had "fail[ed] to demonstrate that any of these equities constitute ‘fraud, unfairness, or oppression’ that affected the sales price." Id. at 161. Similarly, in Shadow Canyon , 405 P.3d at 650, the homeowners association listed, on the notice of sale, the wrong amount necessary to satisfy the unpaid lien, thus violating a clear statutory requirement. Id. The ultimate sales price was low—approximately 11% of market value. Id. But the Nevada Supreme Court held that the statutory violation nevertheless did not constitute fraud, unfairness, or oppression that affected the sale: "Significantly, there is no evidence in the record to suggest that [the bank] ever tried to tender payment in any amount to the HOA, much less that [the bank] was confused or otherwise prejudiced by the notice of sale." Id.

Here, the purchase price was approximately 8% of the market value of the property. Because of that low purchase price, U.S. Bank must produce only slight evidence of fraud, unfairness, or oppression that affected the sale. Id. at 648.

U.S. Bank points to the mortgage-savings clause in the CC&Rs as evidence of unfairness that affected the sale. The clause stated, contrary to Nevada law, that any lien for unpaid assessments would be subordinate to any lien by the first deed of trust. The mortgage-savings clause was void as a matter of Nevada law. See SFR Invs. Pool 1, LLC v. U.S. Bank, N.A. , 130 Nev. 742, 334 P.3d 408, 419 (2014) (en banc) (holding that a similar mortgage-savings clause was void). The clause plainly conflicted with Nevada Revised Statutes section 116.3116(2), which required liens for unpaid assessments to have superpriority status. Id. Additi...