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9th Cir. Holds Servicer Did Not Need to Produce Servicing Contract to Assert Federal Foreclosure Bar

foreclosure saleThe U.S. Court of Appeals for the Ninth Circuit recently affirmed a trial court’s order of summary judgment in favor of a loan servicer on claims arising from a non-judicial foreclosure sale conducted by a homeowners association on real property located in Las Vegas, Nevada.

In so ruling, the Ninth Circuit held that:

  1. As loan servicer for a Government Sponsored Entity (“GSE”), the servicer had standing to invoke the Federal Foreclosure Bar;
  2. The servicer timely invoked the Foreclosure Bar by bringing the instant quiet title action within the appliable statute of limitations;
  3. The Foreclosure Bar applied to the HOA foreclosure sale at issue; and
  4. The Foreclosure Bar preempted Nevada law regarding the priority of the HOA’s lien.

A copy of the opinion in Nationstar Mortgage LLC v. Saticoy Bay LLC is available at:  Link to Opinion.

In 2005, two borrowers obtained a $219,200.00 loan secured by a Deed of Trust (“DOT”) recorded against real property located in Las Vegas, Nevada. One of the GSEs purchased the loan in March 2005. On Oct. 28, 2010, an assignment of the DOT was recorded assigning the DOT to the loan’s prior servicer.

As a result of the borrowers’ failure to pay their HOA dues, the HOA foreclosed on the property and sold it to Co-Defendant Trust (the “Trust”) on October 5, 2012 (the “HOA foreclosure”).  In August 2013, an assignment of the DOT was recorded assigning the DOT to the plaintiff.  In September 2013, the Trust conveyed the property to Co-Defendant Limited Liability Company (the “LLC Defendant”).

On November 11, 2015, the servicer instituted the instant action against the Trust and LLC Defendant seeking to quiet title and obtain a “declaration that [GSE’s interest in the property] was not extinguished by the HOA Foreclosure.”  The trial court granted summary judgment in favor of the servicer finding that the Foreclosure Bar prevented the extinguishment of the GSE’s interest in the property.  The LLC Defendant timely appealed the trial court’s summary judgment order.

On appeal, LLC Defendant initially argued that the servicer lacked standing to invoke the Foreclosure Bar.  The Ninth Circuit disagreed, explaining that the Nevada Supreme Court previously declared that a “a loan servicer has standing to assert the Federal Foreclosure Bar on behalf of . . . Fannie Mae.”  Daisy Tr. v. Wells Fargo Bank, N.A., 445 P.3d 846, 847 n.1 (Nev. 2019) (en banc).

The Ninth Circuit separately determined that the servicer “presented ample evidence” establishing its servicing relationship with the GSE. Indeed, this relationship, coupled with the authority the GSE “delegates to its loan servicers … was more than sufficient to establish that [the servicer] was [the GSE’s] loan servicer and had the authority to assert the Federal Foreclosure Bar in this case.”

Having found that the servicer had the requisite standing, the Ninth Circuit next determined that the servicer timely invoked the Foreclosure Bar by bringing the instant quiet title action within the applicable six-year statute of limitations under 12 U.S.C. § 4617(b)(12)(A).

The LLC Defendant proceeded to argue that the HOA foreclosure extinguished the DOT before it was assigned to the plaintiff.  As you may recall, the Foreclosure Bar applies if, “at the time of the foreclosure sale; (1) [the GSE] was in FHFA conservatorship; (2) [the GSE] owned the [DOT]; and (3) [the GSE] had an agency relationship with…the beneficiary of record on the [DOT].”

Concerning the first factor, the Ninth Circuit noted the GSE was placed in the “FHFA’s conservatorship on September 6, 2008, … and remains there today.”  As to the second and third elements, the Court held that both requirements were met as the servicer introduced evidence that: (1) the GSE acquired the loan on March 1, 2005 and continued to own it through the HOA foreclosure; and (2) the prior servicer was acting as the GSE’s servicer for this loan until transferring that responsibility to the servicer on April 30, 2013.

Importantly, and contrary to the LLC Defendant’s argument, the Court held that the servicer was not required to specifically produce the “Mortgage Servicing Contract” in order to establish an agency relationship with the GSE. See Daisy Tr., 445 P.3d at 849–50.

The LLC Defendant separately argued that the GSE did not hold an ownership interest in the loan because the servicer did not produce a “signed writing” in accordance with Nevada’s statute of frauds.  The Ninth Circuit rejected this argument stating that the LLC Defendant was not a party to the agreement to which the GSE acquired the loan, and thus the LLC Defendant lacked standing to raise a statute of frauds defense.

The Court further determined that: (1) Nevada’s recording statutes did not require the GSE to be identified as the beneficiary of record in order to establish its ownership interest in the loan; (2) it was adequate for the loan’s servicer to be listed as the loan’s beneficiary at the time of the HOA foreclosure; and (3) even if Nevada’s bona fide purchaser statutes were at issue, the LLC Defendant was not a bona fide purchaser as it had “constructive knowledge of [the GSE’s] interest in the [DOT].”

The Ninth Circuit also held that “the Foreclosure Bar preempts the Nevada super-priority lien scheme,” stating that this preemption issue has “already been clearly and repeatedly answered.”

Lastly, the LLC Defendant argued the trial court wrongly granted the servicer “equitable relief from the recitals in the foreclosure deed, namely the default recital.”  Assuming and without deciding whether the relief was equitable in nature, the Ninth Circuit rejected this argument because the LLC Defendant failed to explain “how, under Nevada law, monetary damages constitute an adequate remedy for loss of real property rights.”

Accordingly, and for all the above reasons, the Ninth Circuit affirmed the trial court’s grant of summary judgment in favor of the servicer.

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Patrick Kane is based in the San Diego office of Maurice Wutscher LLP where he practices in the firm’s Consumer Credit Litigation, Commercial Litigation, and Insurance Recovery and Advisory groups. Patrick has substantial experience representing depository institutions, mortgage investors, and loan servicers in litigation in both federal and state courts. Patrick’s practice focuses on litigation defense and compliance advice concerning the FDCPA, FCRA, TILA, RESPA as well as other federal and state consumer protection statutes. Patrick is also a state appointed hearing officer for the California Horse Racing Board where he conducts and oversees hearings, adjudicates decisions, and issues findings of fact and conclusions of law.

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