Zzyzx 2 v. Wells Fargo Bank, N.A.
2:13-cv-01307
D. Nev.Mar 25, 2016Background
- Dizon executed a deed of trust in 2001; World Savings (now Wells Fargo) holds the deed and note on property at 8246 Azure Shores Ct., Las Vegas.
- Monaco HOA recorded a notice of default for unpaid assessments (≈ $1,595.80 as of Dec. 2011) and foreclosed nonjudicially on May 2, 2013; sale deed recites value $210,863 and the property sold for $15,000 to LNM/Zyzzx (≈7% of recited value).
- HOA notices and foreclosure materials stated the HOA sale would be subordinate to the first deed of trust (i.e., would not extinguish the mortgage), and the HOA’s governing documents contain a mortgage-protection clause.
- Wells Fargo sued (removed from state court) seeking to quiet title, arguing the HOA sale was commercially unreasonable and challenging NRS 116.3116; court stayed constitutional questions and first considered commercial reasonableness.
- Court applied Nevada law interpreting the UCIOA and the Long two-part test (price inadequacy plus fraud/unfairness/oppression) and found the sale grossly inadequate and unfair because HOA misrepresentations dissuaded bidders and prevented Wells Fargo from curing, so the sale was void.
- Court granted summary judgment for Wells Fargo, dismissed plaintiff’s quiet-title claim, and closed the case (March 25, 2016).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the HOA foreclosure sale was commercially reasonable | Sale was valid despite low price; low price alone insufficient to void sale | Sale was commercially unreasonable: grossly inadequate price (7% of value) and HOA misrepresentations that sale was subordinate to the mortgage dissuaded bidders and prevented cure | Sale was commercially unreasonable and therefore void; summary judgment for Wells Fargo |
| Whether gross inadequacy alone can void the sale under Nevada law | Plaintiff: must show fraud, unfairness, or oppression in addition to low price | Wells Fargo: gross inadequacy (per Restatement §8.3) supports close scrutiny and can be dispositive in some jurisdictions | Court applied Long two-part test (price + unfairness); declined to treat Restatement §8.3 as sole rule absent Nevada Supreme Court adoption |
| Whether HOA misrepresentations about priority render sale unfair | Plaintiff: HOA has statutory superpriority so advertising that sale would be subordinate is irrelevant | Wells Fargo: inconsistent public statements misled bidders and mortgagee, constituting unfairness | Court found HOA statements legally inaccurate and that they caused an unreasonably low price — sufficient unfairness to void sale |
| Whether court should reach constitutional challenge to NRS 116.3116 | Plaintiff: not addressed here | Wells Fargo: raised constitutional challenge but asked court to resolve summary judgment first | Court resolved case on nonconstitutional ground (sale void) and did not reach constitutional issues |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (summary judgment burden-shifting)
- Lujan v. National Wildlife Federation, 497 U.S. 871 (construing facts for non-moving party)
- Levers v. Rio King Land & Investment Co., 560 P.2d 917 (Nev. 1977) (discrepancy between sale price and collateral value warrants scrutiny of commercial reasonableness)
- Long v. Towne, 639 P.2d 528 (two-part test: inadequate price requires fraud, unfairness, or oppression to set aside sale)
- Ballentyne v. Smith, 205 U.S. 285 (where price is greatly inadequate, slight unfairness may justify setting sale aside)
- In re Krohn, 52 P.3d 774 (Ariz. 2002) (adopting Restatement §8.3: gross inadequacy alone may void sale)