FEDERAL HOME LOAN MORTGAGE CORPORATION; FEDERAL HOUSING FINANCE AGENCY, As Conservator of Freddie Mac; FEDERAL NATIONAL MORTGAGE ASSOCIATION v. SFR INVESTMENTS POOL 1, LLC, and NEVADA NEW BUILDS, LLC; LAS VEGAS DEVELOPMENT GROUP, LLC
No. 16-15962
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
June 25, 2018
D.C. No. 2:15-cv-01338-GMN-CWH. Appeal from the United States District Court for the District of Nevada. Gloria M. Navarro, Chief Judge, Presiding. Argued and Submitted April 11, 2018 San Francisco, California.
FHLMC v. SFR INVESTMENTS POOL 1
Before: M. Margaret McKeown and Kim McLane Wardlaw, Circuit Judges, and Gary S. Katzmann,* Judge.
Opinion by Judge Katzmann
SUMMARY**
Housing and Economic Recovery Act
The panel affirmed the district court‘s summary judgment in favor of the Federal National Mortgage Association (“Fannie Mae“), the Federal Home Loan Mortgage Corporation (“Freddie Mac“), and the Federal Housing Finance Agency (“FHFA“) in their action seeking declaratory relief regarding foreclosures under
Nevada homeowners’ associations (“HOAs“) sold five properties to defendant SFR Investments Pool 1, Inc., following foreclosures on liens for unpaid HOA dues. Fannie Mae and Freddie Mac had purchased mortgage loans on the properties and had securitized the loans. Fannie Mae and Freddie Mac had subsequently been placed under the conservatorship of FHFA pursuant to the Housing and Economic Recovery Act of 2008 (“HERA“). FHFA did not consent to the HOA foreclosure sales of the properties to SFR.
The Nevada Foreclosure Statute,
The panel held that under HERA, FHFA succeeded to Fannie Mae and Freddie Mac‘s securitized mortgage loans, which were held in trust, upon inception of conservatorship. Accordingly, FHFA, as conservator, possessed enforceable interests in the properties at the time of the HOA foreclosure sales. The Federal Foreclosure Bar,
The panel held that under Berezovsky v. Moniz, 869 F.3d 923 (9th Cir. 2017), the Federal Foreclosure Bar preempts the Nevada Foreclosure Statute to the extent that an HOA‘s foreclosure of its superpriority lien cannot extinguish a property interest of Fannie Mae or Freddie Mac while under FHFA conservatorship. Accordingly, the HOA foreclosure sales on the properties did not extinguish Fannie Mae and Freddie Mac‘s interests in the properties and thus did not convey the properties free and clear of their deeds of trust to SFR.
The panel further held that FHFA did not deprive SFR of a property right without due process because (1) Nevada law did not provide SFR with a constitutionally protected property interest in purchasing the houses with free and clear title, and (2) assuming a protected property interest, SFR was not deprived of that interest without adequate procedural protections.
COUNSEL
Karen L. Hanks (argued), Jesse N. Panoff, Diana Cline Ebron, Jacqueline A. Gilbert, and Howard C. Kim, Kim Gilbert Ebron, Las Vegas, Nevada; for Defendant-Appellant.
Michael A.F. Johnson (argued), Matthew J. Oster, Elliott C. Mogul, Dirk C. Phillips, Asim Varma, and Howard N. Cayne, Arnold & Porter Kaye Scholer LLP, Washington, D.C.; John D. Tennert III and Leslie Bryan Hart, Fennemore Craig P.C., Reno, Nevada; Michael W. Stark, Tennille J. Checkovich, and John H. Maddock III, McGuire Woods LLP, Richmond, Virginia; Robin E. Perkins and Amy Sorenson, Snell & Wilmer, Salt Lake City, Utah; for Plaintiffs-Appellees.
KATZMANN, Judge:
The economic downturn following the subprime mortgage crisis of 2007 pushed to near default two government-sponsored enterprises that were heavily exposed to the housing market. The Federal National Mortgage Association (“Fannie Mae“) and the Federal Home Loan Mortgage Corporation (“Freddie Mac,” collectively, with Fannie Mae, “the Enterprises“) suffered a severe drop in the value of their mortgage portfolios, which previously comprised nearly half of the United States mortgage market and totaled approximately $5 trillion. In response, the United States government deployed numerous measures to keep the Enterprises afloat and combat further systemic breakdown in the financial and housing markets. Among those was Congress’ passage of the Housing and Economic Recovery Act of 2008 (“HERA“), Pub. L. No. 110-289, 122 Stat. 2654 (codified as amended at
This case concerns several provisions of HERA, and poses the following questions: can FHFA, as conservator, “succeed to” ownership of the mortgages that were securitized by the Enterprises pursuant to
Defendant SFR Investments Pool 1, Inc. (“SFR“) owns several pieces of real property in Nevada. Five of them (“the Properties“) are at issue in this case. The Properties were sold to SFR by Nevada homeowners’ associations (“HOAs“) following foreclosures on liens for unpaid association dues. Plaintiffs FHFA and the Enterprises sued SFR in the United States District Court for the District of Nevada, seeking a declaration that ”
FACTUAL AND PROCEDURAL HISTORY
The facts relevant to the instant proceeding were recited by the district court in its opinion, and are not challenged by either party.
The Properties and the Mortgage Loans they Secure
Four of the Properties are located in Las Vegas, Nevada, and the fifth is located in Henderson, Nevada. Each of the Properties is located in a different HOA community. The Properties’ original owners had mortgage loans on their respective homes. Those loans were secured by the homes. Either Fannie Mae or Freddie Mac purchased the mortgage loans in 2006, and the respective Enterprise has retained ownership since. Each loan is evidenced by a promissory note and a deed of trust, both of which came into the respective Enterprise‘s possession upon purchase of the mortgage loan.
The Enterprises and Securitized Mortgage Loans
“Congress created Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) to foster the secondary market for home mortgages.” City of Spokane v. Fed. Nat. Mortg. Ass‘n, 775 F.3d 1113, 1114 (9th Cir. 2014). The Enterprises do not themselves originate loans in the primary market, and their charters permit only secondary market functions. See Federal National Mortgage Association Charter Act, 68 Stat. 612 (1954) (codified as amended at
In the secondary mortgage market, existing mortgage loans are bought, sold, and securitized. Perry Capital, 864 F.3d at 599. The Enterprises thus continually purchase residential mortgage loans secured by property throughout the nation, and securitize those mortgage loans. Id.; see Lightfoot, 137 S. Ct. at 557.
To securitize mortgage loans, and thereby create mortgage-backed securities, the Enterprises place the purchased loans they own into pools and issue certificates entitling the certificate-holders to a contractually specified share of payments borrowers make. Herron v. Fannie Mae, 861 F.3d 160, 163 (D.C. Cir. 2017); Nomura Holding, 873 F.3d at 105. The Enterprises customarily perform this securitization by placing mortgage loans into common-law trusts, of which the relevant Enterprise is the trustee.
Passage of HERA and Relevant Provisions
From 2007 through 2008, housing prices fell rapidly as the subprime mortgage and financial crises developed. Meanwhile, interest rates on adjustable-rate mortgages rose. These factors, along with an overabundance of subprime mortgage lending and shoddy underwriting practices, resulted in a glut of homeowners who could not make their mortgage loan payments. Defaulting on mortgage loans thus became an attractive option for many homeowners. Each default and resulting foreclosure sale depressed the prices of nearby homes, promoting a vicious downward spiral in the housing market. See Nomura Holding, 873 F.3d at 106–08 (providing a history of the housing and financial crises).
During the 2000s, the Enterprises, as major players in the United States housing market, purchased these risky mortgage loans, and thus exposed themselves to the eventual downturn in the housing market. Herron, 861 F.3d at 163. Overall, in the lead up to 2008, the Enterprises’ mortgage portfolios had a combined value of $5 trillion and accounted for nearly half of the United States mortgage market. Perry Capital, 864 F.3d at 599. The Enterprises subsequently suffered a severe drop in the value of their mortgage portfolios and were pushed to the brink of default. Id.; Herron, 861 F.3d at 163.
As noted, Congress, concerned for the Enterprises’ financial condition and that their default would imperil the ailing national economy, passed HERA, which became law in July 2008. See Nomura Holding, 873 F.3d at 108; Perry Capital, 864 F.3d at 599. Several HERA subsections are immediate to the issues in this case. HERA established FHFA as the Enterprises’ regulator under
Section 4617(b) covers “Powers and duties of the Agency as conservator or receiver.” Section 4617(b)(2) refers to “General powers.” Relevant here,
Next,
Finally,
In September 2008, as noted, FHFA‘s Director placed Fannie Mae and Freddie Mac into conservatorship, pursuant to
The Nevada Foreclosure Statute and the HOA Foreclosure Sales
The Nevada Foreclosure Statute gives an HOA a superpriority lien on a homeowner‘s property for a limited amount of unpaid HOA dues. See
respective Properties for the outstanding balance of HOA dues, and ultimately foreclosed upon the liens on the Properties. SFR purchased each of the Properties at an HOA foreclosure sale in either 2012, 2013, or 2014.
Procedural History
FHFA and the Enterprises asserted claims against SFR seeking declaratory relief, quiet title, and a permanent injunction, and moved for summary judgment on December 18, 2015, after having filed an amended complaint on October 1, 2015. In lieu of filing an answer to FHFA‘s complaint, SFR moved to dismiss on October
[The Federal Foreclosure Bar] preempts [the Nevada Foreclosure Statute,
NRS] § 116.3116 to the extent that a[n HOA‘s] foreclosure of its super-priority lien cannot extinguish a property interest of [the Enterprises] while those entities are under FHFA‘s conservatorship. Accordingly, the HOA foreclosure sales on the Properties did not extinguish Fannie Mae‘s or Freddie Mac‘s interests in the Properties and thus did not convey the Properties free and clear of their deeds of trusts to SFR. Moreover, title to the Properties is quieted in either Fannie Mae‘s or Freddie Mac‘s favor insofar as SFR‘s interest, if any, is subject to the interest of Fannie Mae or Freddie Mac or, if
applicable, the interest of Fannie Mae‘s or Freddie Mac‘s successors.2
Judgment was entered May 4, 2016. SFR timely appealed on May 27, 2016.
STANDARDS OF REVIEW
We review a district court‘s grant of summary judgment de novo and apply the same standard of review as the district court under
also reviewed de novo. Doe v. United States, 419 F.3d 1058, 1062 (9th Cir. 2005).
DISCUSSION
A. Whether FHFA can “Succeed to” Mortgages that were “Held in Trust” by an Enterprise.
HERA mandates that FHFA shall “succeed to” Enterprise assets.
We conclude that SFR‘s textual arguments lack merit. As noted supra, FHFA‘s right of succession appears under
The plain text of these provisions does not state or imply that FHFA may either “succeed to” mortgages or “h[o]ld [them] in trust,” rather than perform both of these actions in regard to a securitized mortgage loan. Section 4617(b)(19)(B) nowhere disallows FHFA from
“succeed[ing] to” mortgages held it trust. Subsection (i) merely contains the general ban on liquidation of securitized mortgages “held in trust” to satisfy the claims of general creditors. Meanwhile, subsection (ii) clarifies that FHFA shall continue to hold and manage those securitized mortgages for their various beneficial owners pursuant to the contractual arrangement underlying the relevant securitization pool, originally established with one of the Enterprises. This provision offers assurances to purchasers of mortgage-backed security certificates, who pay a lump sum in exchange for a certificate representing the right to a future stream of income from the mortgage loans’ principal and income payments. See Nomura Holding, 873 F.3d at 100. Subsection (iii) additionally permits FHFA to promulgate reasonable regulations to cabin the damages available on claims relating to the securitized mortgages held in trust. Thus, it is patent that
Since the statutory protection from creditors effected by
FHFA‘s reading are readily apparent. Mortgage-backed securities are financial instruments central to the Enterprises’ collective function as secondary mortgage market-maker. FHFA, as conservator, would normally be able to liquidate any asset belonging to the Enterprises in order to fulfill the claims of general creditors. However, when the Enterprises were placed into conservatorship at the height of the subprime mortgage crisis, their mortgage portfolios constituted nearly half of the United States mortgage market and were freefalling in value. See Perry Capital, 864 F.3d at 599; see also Herron, 861 F.3d at 163. Accordingly, Congress provided that the mortgage loans backing mortgage-backed securities would receive additional safeguards in order to combat further systemic breakdown in the American housing market. Thus,
In sum, HERA‘s plain text permits FHFA to “succeed to” securitized mortgage loans, which are held in trust, pursuant to
B. Whether the Federal Foreclosure Bar Preempts the Nevada Foreclosure Statute.
SFR contends that the Federal Foreclosure Bar,
to do so. See Valle del Sol, Inc. v. Whiting, 732 F.3d 1006, 1022 (9th Cir. 2013).
SFR‘s arguments lack merit. “The Supremacy Clause unambiguously provides that if there is any conflict between federal and state law, federal law shall prevail.” Gonzales v. Raich, 545 U.S. 1, 29 (2005); see
We see no cause to disturb our precedential decision, and continue to hold that the Federal Foreclosure Bar preempts the Nevada Foreclosure Statute for the reasons stated therein.
C. Whether FHFA Violated Due Process.
SFR argues that FHFA deprived SFR of a property right without due process, in violation of the Fifth Amendment to the United States Constitution. See
state law. SFR contends that, within this context, “the interplay between state and federal law implicates deprivation, not preemption.” Specifically, SFR asserts that “Nevada law recognizes the interests that purchasers obtain at association sales, including free and clear title,” and that “Nevada Law recognizes SFR‘s interests in the five houses.” SFR argues that FHFA deprived SFR of its interests by affirmatively determining not to consent to the HOA foreclosure sales at issue here.
SFR‘s arguments lack merit. First, SFR‘s assertions that Nevada law provided it with a constitutionally protected property interest in purchasing the houses with free and clear title are incorrect. Second, assuming arguendo SFR possessed a protected property interest, it was not deprived of that interest without adequate procedural protections.
1. The Existence of a Constitutionally Protected Property Interest.
“A procedural due process claim has two distinct elements: (1) a deprivation of a constitutionally protected liberty or property interest, and (2) a denial of adequate procedural protections.” Brewster v. Bd. of Educ. of Lynwood Unified Sch. Dist., 149 F.3d 971, 982 (9th Cir. 1998). Protected property interests derive from “an independent source such as state law—rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.” Thornton v. City of St. Helens, 425 F.3d 1158, 1164 (9th Cir. 2005) (quoting Bd. of Regents of State Colleges v. Roth, 408 U.S. 564, 577 (1972)). However, “[t]o have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.” Roth, 408 U.S. at 577. Thus, “[t]he
property interests that due process protects extend beyond tangible property and include anything to which a plaintiff has a ‘legitimate claim of entitlement.‘” Nozzi v. Hous. Auth. of City of Los Angeles, 806 F.3d 1178, 1191 (9th Cir. 2015), as amended on denial of reh‘g and reh‘g en banc (Jan. 29, 2016) (quoting Roth, 408 U.S. at 576–77). Further, “[a] legitimate claim of entitlement is ‘determined largely by the language of the statute and the extent to which the entitlement is couched in mandatory terms.‘” Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1030 (9th Cir. 2010) (quoting Wedges/Ledges of Cal., Inc. v. Phoenix, 24 F.3d 56, 62 (9th Cir. 1994)). “A mere ‘unilateral expectation’ of a benefit or privilege is insufficient[.]” Nunez v. City of Los Angeles, 147 F.3d 867, 872 (9th Cir. 1998) (quoting Roth, 408 U.S. at 577).
SFR‘s asserted accession to property “interests that purchasers obtain at association sales, including free and clear title,” is not mandated by the Nevada Foreclosure Statute. See Johnson, 623 F.3d at 1030. The relevant provision,
Further, SFR‘s characterization of FHFA‘s non-consent to the HOA foreclosure sales as affirmative declinations is incorrect. The Federal Foreclosure Bar provides that “[n]o property of the Agency shall be subject to ... foreclosure ... without the consent of [FHFA].”
Nor did the absence of the Enterprises’ names in the mortgage loans’ local recording documents at the time of the HOA sales undercut the Enterprises’ interests and provide SFR free and clear title to the Properties. In Berezovsky, we explained that, under Nevada law, the note owner‘s name need not appear in the mortgage‘s recording. “Nevada law requires recording of a lien for it to be enforceable, but does not mandate that the recorded instrument identify the note owner by name.” Berezovsky, 869 F.3d at 932 (citing
recorded deed of trust beneficiary was Freddie Mac‘s loan servicer. Freddie Mac‘s property interest was thus valid and enforceable under Nevada law. Id. at 932–33. Under HERA, FHFA succeeded to Freddie Mac‘s interest in the property at issue, and the Federal Foreclosure Bar shielded that interest.
In the case before us, the liens were recorded. The Enterprises introduced evidence in the district court showing one of them acquired each of the loans securing the Properties prior to each of the HOA foreclosure sales. The district
2. Whether FHFA Denied SFR Adequate Procedural Protections.
Even assuming arguendo that SFR had some constitutionally protected property interest, SFR received all
the procedural protections it was due. The second element of a procedural due process claim is “a denial of adequate procedural protections.” Brewster, 149 F.3d at 982. “[O]nce a court determines that a protected property interest has been taken, ‘the question remains what process is due.‘” Roybal v. Toppenish Sch. Dist., 871 F.3d 927, 933 (9th Cir. 2017) (alteration in Roybal) (quoting Brewster, 149 F.3d at 983). SFR argues that it was deprived of due process because the Federal Foreclosure Bar lacks integral procedural protections, such as the ability to obtain consent to the HOA sales from FHFA. See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 542 (1985); City of W. Covina v. Perkins, 525 U.S. 234, 242 (1999).
SFR‘s argument fails. Due process is a flexible concept, and the procedural protections it demands are molded by the relevant factual context. Yagman v. Garcetti, 852 F.3d 859, 863 (9th Cir. 2017); see Shinault v. Hawks, 782 F.3d 1053, 1057 (9th Cir. 2015) (“Once a protected interest is found, we employ the three-part balancing test of Mathews v. Eldridge, 424 U.S. 319, 335 (1976) .... (1) the private interest affected; (2) the risk of erroneous deprivation through the procedures used, and the value of additional safeguards; and (3) the government‘s interest, including the burdens of additional procedural requirements.“) (citation omitted). The Federal Foreclosure Bar dictates that “[n]o property of the Agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency.”
SFR also contends that that the Enterprises’ interests in the Properties were hidden from the public until the commencement of this litigation, and were not “reasonably calculated ... to apprise interested parties of the pendency of the action.” Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950); see Bourne Valley Court Tr. v. Wells Fargo Bank, NA, 832 F.3d 1154, 1158 (9th Cir. 2016), cert. denied, 137 S. Ct. 2296 (2017). This argument too is unpersuasive. As explained supra, under Nevada law, the note owner‘s name need not appear in the local recording documents, and, as the district court found, the Enterprises possessed valid interests in the Properties at the time of the HOA foreclosure sales. Again, HERA does not require that potential buyers received notice of FHFA‘s or the Enterprises’ interests in properties whose sales are prevented by the Federal Foreclosure Bar. Further, contrary to SFR‘s characterizations, FHFA did not affirmatively decline to consent to the HOA foreclosure sales; rather, the protections of the Federal Foreclosure Bar applied by default, rendering those sales contrary to law. Moreover, SFR does not argue, and the record does not disclose, that it sought FHFA‘s consent to the relevant HOA foreclosure sales, nor that it was incapable of learning of the Enterprises’ interests in the Properties through due diligence. See Gallo v. U.S. Dist. Court For Dist. of Arizona, 349 F.3d 1169, 1181 (9th Cir. 2003) (“[I]t has never been suggested that each citizen must in some way be given specific notice of the impact of a new statute on his property before that law may affect his property rights.“) (alteration in Gallo) (quoting Texaco, Inc. v. Short, 454 U.S. 516, 536 (1982)).
D. Whether FHFA Violated “Reasoned Decisionmaking.”
SFR argues that the process FHFA used in deciding whether to consent to foreclosure on the Properties was not “logical and rational,” because no such process exists. Under the doctrine cited by SFR, “[f]ederal administrative agencies are required to engage in ‘reasoned decisionmaking.‘” Michigan v. EPA, 135 S. Ct. 2699, 2706 (2015) (quoting Allentown Mack Sales & Service, Inc. v. NLRB, 522 U.S. 359, 374 (1998)). “Not only must an agency‘s decreed result be within the scope of its lawful authority, but the process by which it reaches that result must be logical and rational.” Id. (quoting Allentown Mack, 522 U.S. at 374). Thus agency action is lawful only if it relies “on a consideration of the relevant factors.” Id. (quoting Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983)).
SFR‘s arguments again lack merit. SFR‘s citation to Michigan, 135 S. Ct. 2699, is inapposite. That case considered “EPA‘s decision to regulate power plants under [
CONCLUSION
FHFA, as the Enterprises’ conservator, possessed enforceable interests in the Properties at the time of the HOA foreclosure sales. The Federal Foreclosure Bar preempts the Nevada Foreclosure Statute to the extent that an HOA‘s foreclosure of its superpriority lien cannot extinguish a property interest of an Enterprise while it is under FHFA‘s conservatorship. Accordingly, the HOA foreclosure sales on the Properties did not extinguish the Enterprises’ interests in the Properties and thus did not convey the Properties free and clear of their deeds of trust to SFR. Further, because the Nevada Foreclosure Statute did not imbue SFR with a constitutionally protected property interest, and SFR was not denied adequate procedural protections, SFR did not suffer a deprivation of due process by virtue of this statutory framework.
The district court properly denied Defendant SFR‘s Motion to Dismiss and granted the Motion by Plaintiffs FHFA and the Enterprises for Summary Judgment.7
AFFIRMED.
Notes
A lien under this section is prior to all other liens and encumbrances on a unit except:
(a) Liens and encumbrances recorded before the recordation of the declaration and, in a cooperative, liens and encumbrances which the association creates, assumes or takes subject to;
(b) A first security interest on the unit recorded before the date on which the assessment sought to be enforced became delinquent or, in a cooperative, the first security interest encumbering only the unit‘s owner‘s interest and perfected before the date on which the assessment sought to be enforced became delinquent, except that a lien under this section is prior to a security interest described in this paragraph to the extent set forth in subsection 3;
(c) Liens for real estate taxes and other governmental assessments or charges against the unit or cooperative; and
(d) Liens for any fee or charge levied pursuant to subsection 1 of
The Circuit Court reversed the district court‘s legal conclusion that appellant‘s state law property interests were not constitutionally protected due to a federal contingency in the form of the DPA. Instead, the D.C. Circuit determined, “[t]here is no contingency built into the state law from which [appellant‘s] property interests derive and to which interests due process protections traditionally apply.” 758 F.3d at 316–17 (emphasis in Ralls). The D.C. Circuit ultimately concluded that the President‘s action deprived the appellant of its constitutionally protected property interests without due process of law. Id. at 319.
The state and federal statutory interplay in the instant case is altogether different. SFR‘s argument is deficient because the district court here did not read a federal contingency into a state law otherwise pronouncing protected property interests. Instead, the Federal Foreclosure Bar preempts the Nevada Foreclosure Statute as regards HOA foreclosure sales on properties in which FHFA maintains an interest, and proscribes those sales by default.
SFR argues that the district court‘s order contravened