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9th Cir. Holds Quiet Title Claims By GSEs Subject to 6-Year HERA Statute of Limitations

mortgage lawThe U.S. Court of Appeals for the Ninth Circuit recently held that, under the federal Housing and Economic Recovery Act (HERA) statute of limitations provisions, a quiet title action brought by Freddie Mac or Fannie Mae is a “contract” claim with a six-year statute of limitations, and not a “tort” claim subject to a three-year statute of limitations.

A copy of the opinion in M&T Bank v. SFR Investments Pool 1, LLC is available at:  Link to Opinion.

A consumer purchased a home in Las Vegas (“the property”) with a loan secured by a first deed of trust. In January 2007, Freddie Mac acquired the loan and deed of trust.

As you may recall, in response to the 2008 financial crisis, Congress enacted the Housing and Economic Recovery Act, 12 U.S.C. § 4511 et seq., which created the Federal Housing Finance Agency among other things to oversee Freddie Mac. In 2008, the FHFA placed Freddie Mac into conservatorship. As conservator, the FHFA has “all rights, titles, powers, and privileges” of Freddie Mac. 12 U.S.C. § 4617(b)(2)(A)(i).

HERA also enacted the Federal Foreclosure Bar. Id. at § 4617(j)(3).  The Federal Foreclosure Bar provides that “[n]o property of the [Federal Housing Finance Agency] shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency, nor shall any involuntary lien attach to the property of the Agency.”

In May 2012, Freddie Mac assigned the deed of trust to a bank under a servicing agreement.

In July 2012, the property was sold to an investment company (“buyer”) at a non-judicial foreclosure sale to satisfy unpaid homeowners association assessments. As you may recall, Nevada law grants HOAs a “superpriority” lien on a property for unpaid assessments which is superior even to a previously recorded first deed of trust. The FHFA never consented to the extinguishment of the first deed of trust through the 2012 foreclosure sale.

In July 2017, Freddie Mac filed an action seeking quiet title in the property. The buyer moved to dismiss the complaint, claiming that it was time-barred under the three-year statute of limitations applicable to “tort” claims in 12 U.S.C. § 4617(b)(12)(A)(ii). In response, Freddie Mac contended that the governing statute of limitations was the five-year statute in Nevada Revised Statutes § 11.070 applicable to “an action, founded upon the title to real property.”

The trial court held that Nevada’s five-year statute of limitations applied, and later granted summary judgment to Freddie Mac, finding that because the FHFA never consented to the foreclosure sale, Freddie Mac’s interest in the property through the deed of trust survived under the Federal Foreclosure Bar.

The buyer appealed.

On appeal, all parties and the FHFA as amicus agreed that the HERA statute of limitations, 12 U.S.C. § 4617(b)(12)(A), controls.  In relevant part, HERA provides that the statute of limitations for “any action brought by the [FHFA] as conservator . . . shall be”:

(i) in the case of any contract claim, the longer of—
(I) the 6-year period beginning on the date on which the claim accrues; or
(II) the period applicable under State law; and
(ii) in the case of any tort claim, the longer of—
(I) the 3-year period beginning on the date on which the claim accrues; or
(II) the period applicable under State law.

The Ninth Circuit began its analysis acknowledging the applicability of the statute through FDIC v. Bledsoe, in which the Fifth Circuit held that that a similarly worded statute of limitations —facially applying only to actions brought by a federal agency — also applied to actions brought by a private entity acting as an assignee for the federal agency. 989 F.2d 805, 809–11 (5th Cir. 1993).

In Bledsoe, the Fifth Circuit held that the common law was “loud and consistent,” in providing that “an assignee stands in the shoes of his assignor, deriving the same but no greater rights and remedies than the assignor then possessed” and therefore receives the same limitations period as the assignor. Id. at 810.

The Ninth Circuit adopted the Fifth Circuit’s reasoning in United States v. Thornburg, 82 F.3d 886, 891 (9th Cir. 1996).

Here, the Ninth Circuit noted that Freddie Mac is under the FHFA conservatorship, and the FHFA thus has “all rights, titles, powers, and privileges” of Freddie Mac “with respect to [its] . . . assets.” 12 U.S.C. § 4617(b)(2)(A)(i). Like an assignee, Freddie Mac thus “stands in the shoes of” the FHFA with respect to its current claims to quiet title to the deed of trust, which is property of the conservatorship. Bledsoe, 989 F.2d at 809.

Next, the Court acknowledged that although § 4617(b)(12)(A) only explicitly addresses “tort” and “contract” claims, it applies to all claims brought by the FHFA as conservator. See 12 U.S.C. § 4617(b)(12)(A) (stating that it “provides” what “the statute of limitations” “shall be” for “any action brought by the [FHFA] as conservator”), and thus, “if neither description is a perfect fit, we must decide when applying the statute whether a claim is better characterized as sounding in contract or in tort.”

The Ninth Circuit concluded that the claims in this action are “contract” claims under 12 U.S.C. § 4617(b)(12)(A)(i). The Court reasoned that, although there was no contract between the buyer and the plaintiffs, the quiet title claims are entirely “dependent” upon Freddie Mac’s lien on the property, an interest created by contract. Additionally, Freddie Mac did not seek damages or claim a breach of duty resulting in injury to person or property, two of the traditional hallmarks of a torts action.

Finally, the Ninth Circuit noted, generally “[w]hen choosing between multiple potentially-applicable statutes, as a matter of federal policy the longer statute of limitations should apply.” Wise v. Verizon Commc’ns, Inc., 600 F.3d 1180, 1187 n.2 (9th Cir. 2010).

Accordingly, the Ninth Circuit held that the plaintiffs had at least six years to bring their claims after the foreclosure sale, and the judgment of the trial court was affirmed.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.