Bank of New York Mellon v. 732 Hardy Way Trust
19-17048
9th Cir.Jun 25, 2021Background
- Property at 732 Hardy Way (Mesquite, NV) was subject to an HOA superpriority lien and a first deed of trust held by Bank of New York Mellon (Bank).
- Homeowner Harold Hill fell behind on HOA dues in Jan 2014; HOA recorded delinquent-assessment and notice of default; Hill filed Chapter 13 in Apr 2014 and listed the property in bankruptcy schedules.
- While Hill’s bankruptcy case (and the automatic stay) remained in effect, the HOA recorded a notice of foreclosure sale (July 2014) and sold the property to 732 Hardy Way Trust at a nonjudicial sale (Sept 19, 2014).
- The Bank sued in diversity under Nevada quiet-title statute (Nev. Rev. Stat. 40.010), seeking declaration that the HOA sale was void as violating the automatic bankruptcy stay and that the Bank’s deed of trust survived.
- The district court granted summary judgment to the Trust; the Ninth Circuit reversed, holding the Bank had standing and that an HOA foreclosure occurring in violation of the automatic stay is void under Nevada law, so the Bank holds superior title.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Prudential standing to challenge an automatic-stay violation in a diversity quiet-title action | Bank: state quiet-title cause of action permits it to raise that the HOA sale violated the automatic stay | Trust: Bank lacks prudential standing under bankruptcy precedent (In re Pecan Groves) to enforce the stay | Bank has prudential standing under Nevada’s quiet-title statute to litigate voidness in this diversity action |
| Effect of an HOA foreclosure sale conducted in violation of the automatic stay: void or voidable | Bank: Ninth Circuit precedent treats stay violations as void ab initio, so the sale never extinguished Bank’s deed | Trust: sale should be treated as valid or at least voidable; bona fide purchaser defense applies | Sale in violation of the automatic stay is void (not merely voidable) and thus cannot extinguish Bank’s lien |
| Relative title / superiority and bona fide purchaser defense | Bank: because the sale was void, Bank’s first deed of trust remains superior and BFP status is irrelevant | Trust: purchase extinguished Bank’s lien; it was a purchaser for value | Bank’s interest is superior; Nevada law holds BFP status irrelevant when sale is void due to procedural defect |
| Governing law: federal bankruptcy law vs state property law consequences | Bank: federal stay creates the factual voidness; Nevada property law governs consequences in quiet-title action | Trust: federal law (and limits on who may enforce stay) should control and bar Bank’s claim | State property law may apply consequences of a federal-law-created nullity; Nevada recognizes and enforces voidness caused by stay violations in quiet-title suits |
Key Cases Cited
- In re Schwartz, 954 F.2d 569 (9th Cir. 1992) (actions violating the bankruptcy stay are void, not merely voidable)
- In re Pecan Groves (Tilley v. Vucurevich), 951 F.2d 242 (9th Cir. 1991) (limits on creditor standing to enforce stay in bankruptcy appeals)
- LN Mgmt., LLC Series 5105 Portraits Place v. Green Tree Loan Servicing, LLC, 399 P.3d 359 (Nev. 2017) (Nevada: HOA foreclosure held invalid when it violated the automatic stay)
- 40235 Washington St. Corp. v. Lusardi, 329 F.3d 1076 (9th Cir. 2003) (purchase at sale held without effect when sale violated bankruptcy protections)
- City of Chicago v. Fulton, 141 S. Ct. 585 (2021) (Supreme Court: automatic stay protects creditors as a group by preventing races to assets)