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Financial Services Law Insights and Observations

9th Circuit: Federal Foreclosure Bar preempts Nevada HOA law, maintaining Fannie Deed of Trust

Courts Appellate Ninth Circuit Fannie Mae FHFA Mortgages

Courts

On May 5, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a mortgage servicer in an action asserting claims arising from a homeowners’ association’s (HOA) nonjudicial foreclosure on real property in Nevada. According to the opinion, Fannie Mae originally purchased the loan on the property (secured by a Deed of Trust), which was eventually assigned to the mortgage servicer. Following the homeowners’ failure to pay their HOA dues, a foreclosure sale was held, and the property was conveyed to a limited liability company. The mortgage servicer filed a quiet title suit against the company, and the district court granted summary judgment in its favor on the basis that the Federal Foreclosure Bar (which prohibits the foreclosure of FHFA property without FHFA’s consent) “prevented the extinguishment of Fannie Mae’s Deed.”

In agreeing with the district court, the 9th Circuit first rejected two threshold challenges raised by the company, holding that the mortgage servicer “properly and timely” raised its claims under the Federal Foreclosure Bar. Specifically, the appellate court determined that the mortgage servicer “presented ample evidence of its servicing relationship with Fannie Mae,” and that this relationship, along with authority delegated to Fannie Mae loan servicers to protect its mortgage loans, “was more than sufficient to establish” that the mortgage servicer was Fannie Mae’s loan servicer and, therefore “had the authority to assert the Federal Foreclosure Bar” in quiet title action. The 9th Circuit also concluded that the mortgage servicer filed the action within the applicable six-year statute of limitations. In holding that the Federal Foreclosure Bar preempted Nevada’s HOA law and prevented the extinguishment of Fannie Mae’s Deed of Trust, the appellate court noted, among other things, that the mortgage servicer demonstrated that Fannie Mae retained an enforceable interest in the loan at the time of the HOA foreclosure sale. The 9th Circuit rejected the company’s argument that the mortgage servicer “failed to produce a ‘signed writing’ evincing such interest as required by the Nevada statute of frauds.” According to the appellate court, given that the company “was not a party to the underlying loan agreement pursuant to which Fannie Mae acquired the loan,” the company could not raise the statute of frauds.