Freedom Mortgage Corp. v. Las Vegas Development Group, LLC
106 F. Supp. 3d 1174
D. Nev.2015Background
- Castro bought a Nevada home in 2009 with a Freedom Mortgage first deed of trust; the loan was FHA-insured by HUD.
- The property was subject to Tierra de las Palmas HOA covenants requiring assessments; Castro defaulted on HOA dues.
- The HOA conducted a Chapter 116 nonjudicial foreclosure in August 2011, credit-bid the property, then sold it to Las Vegas Development Group (LVDG).
- Nevada law (NRS 116.3116(2)), as interpreted by the Nevada Supreme Court in SFR, gives HOAs a superpriority lien that can extinguish a first deed of trust upon proper foreclosure.
- Freedom Mortgage sued post-SFR seeking declaratory/injunctive relief and quiet title, arguing HUD’s interest (because of FHA insurance) is protected by the Property and Supremacy Clauses and thus NRS 116.3116 cannot extinguish its deed.
- The HOA and LVDG moved to dismiss; the court granted dismissal with prejudice, holding Freedom lacks standing to assert HUD’s Property Clause rights, HUD had no protected property interest here, and federal law does not preempt Nevada’s superpriority statute when applied to HUD‑insured loans.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to assert Property Clause challenge | Freedom may litigate HUD’s Property Clause rights because HUD insured the mortgage | Freedom lacks prudential standing to press third‑party federal property rights | Court: Freedom lacks prudential standing to assert HUD’s Property Clause claim |
| Property Clause — did HUD own or hold a protected interest in the property? | FHA insurance creates a federal property interest protected by the Property Clause | HUD did not hold a deed or own the property; HUD was only an insurer and never acquired title or an assigned mortgage | Court: HUD had no constitutionally protected property interest here; foreclosure did not dispose of U.S. property |
| Supremacy Clause / Preemption — does federal law preempt NRS 116.3116 when mortgage is HUD‑insured? | Allowing HOA foreclosure to extinguish HUD‑insured mortgages frustrates HUD program goals and impedes HUD’s ability to obtain title or resell | HUD’s program contemplates state priority rules; lenders have affirmative obligations (and reimbursement mechanisms) to protect title and pay HOA assessments; no conflict exists | Court: No conflict preemption; Nevada’s superpriority rule is consistent with HUD program and does not frustrate federal objectives |
| Remedy / disposition | Relief to restore Freedom’s deed or block sale | SFR governs; Freedom’s deed was extinguished; claims legally untenable | Court: All claims dismissed with prejudice; Freedom no longer has any cognizable interest |
Key Cases Cited
- SFR Inv. Pool 1, LLC v. U.S. Bank, 334 P.3d 408 (Nev. 2014) (Nevada Supreme Court held NRS 116.3116(2) creates a true superpriority lien that can extinguish a first deed of trust)
- Wilcox v. Jackson, 38 U.S. 498 (U.S. 1839) (Property Clause principle that federal property cannot be divested by state law)
- The Wilderness Soc’y v. Kane Cnty., 632 F.3d 1162 (10th Cir. 2011) (third‑party standing caution; federal government is best proponent of its own interests)
- United States v. Kimbell Foods, Inc., 440 U.S. 715 (U.S. 1979) (framework for when federal programs should adopt state rules vs. uniform federal rule)
- Chicago Title Ins. Co. v. Sherred Village Assocs., 708 F.2d 804 (1st Cir. 1983) (mechanics’ lien priority over HUD mortgages did not impermissibly frustrate federal mortgage‑insurance program)