Case Title: Holt v. Reg'l Tr. Servs. Corp.

Citation: 127 Nev. Adv. Op. No. 80

Docket Number: 

State: nevada

Court: Nevada Supreme Court

Date: 2011-12-15T00:00:00Z

Document:
427 Nev, Advance Opinion GO

IN THE SUPREME COURT OF THE STATE OF NEVADA

KARL HOLT AND FRANCES HOLT,
Appellants,

vs.
REGIONAL TRUSTEE SERVICES
CORPORATION, A FOREIGN ENTITY;
ONE WEST BANK, FSB, A FOREIGN
ENTITY; AND VERISE CAMPBELL, IN
HER OFFICIAL CAPACITY AS
DEPUTY DIRECTOR, NEVADA
FORECLOSURE MEDIATION
PROGRAM,
Respondents.

No, 56479

FILED

EC 15 2011

      
         
       
   
 
 
  
  
    
 
   
   
   

 

Appeal from a district court order denying a motion for
preliminary and permanent injunctions in a real property action. Eighth
Judicial District Court, Clark County; Michelle Leavitt, Judge.

Affirmed.

‘Law Offices of Roderic A. Carucci and Roderic A. Carucci, Reno,
for Appellants.

Wright, Finlay & Zak, LLP, and Donna M. Osborn and Robin Prema
Wright, Las Vegas,

for Respondents Regional Trustee Services Corporation and One West
Bank, FSB.

Fennemore Craig, P.C., and Christopher H. Byrd, Las Vegas,
for Respondent Verise Campbell.

BEFORE THE COURT EN BANC.

 
OPINION

By the Court, PICKERING, J.

Since 2009 Nevada law has required loan-modification
mediation on homeowner request before a nonjudicial foreclosure sale can
proceed on an owner-occupied residence. Compliance is evidenced by
Foreclosure Mediation Program (FMP) certificate that mediation ha:
concluded or been waived. ‘This certificate must be recorded for a valid
foreclosure sale to occur.

On this appeal, we consider whether a lender who has been
denied an FMP certificate for failing to mediate in good faith can reinitiate
foreclosure by means of a new notice of default and election to sell and
rescission of the original, thereby restarting the FMP process. In the
circumstances of this case, we conclude that it can, We therefore affirm
the district court's refusal to enjoin the nonjudicial foreclosure initiated by
the second notice of default and election to sell and its further order
directing the parties to return to FMP mediation,

L

Appellants Karl and Frances Holt signed a $2,350,000 note
secured by a first deed of trust on their home, Respondents Regional
‘Trustee Services Corporation (RTSC) and One West Bank, FSB are the
trustee and beneficiary, respectively, of the deed of trust. The Holts have

We base this statement on the representations made to the district
court. The Holts dispute One West's beneficiary status but did not develop
the issue in either of the two district court proceedings in this matter.
This issue may be fleshed out when mediation occurs.

 

 
98

not made a house payment since September of 2008; as of July, 2010, their
arrearages stood at more than $360,000.

RTSC initiated nonjudicial foreclosure on July 16, 2009, by
recording a notice of default and election to sell (the 2009 NOD). ‘The
Holts elected mediation under the then-new FMP. When no one from the
lender's side appeared at the scheduled mediation, the mediator declared
RTSC in bad faith. The Holts then filed a petition for judicial review in
district court pursuant to NRS 107.086(5) to redress RTSC’s bad faith non:
participation in the FMP process. The petition named only RTSC as
respondent and sought loan modification as sanctions, specifically,
reduced principal (from $2,345,000 to $1,300,000), lower interest (from
6.5% to 2%), and a change in terms (from “interest only” to fully amortized
over 30 years).

‘The matter was assigned to Judge Donald M. Mosley, who
ordered a rescheduled mediation at RTSC’s expense. Once again, no one
from the lender's side appeared, and the Holts returned to district court,
where they renewed their request for sanctions. After hearing argument
but without taking evidence, Judge Mosley declined the Holts’ request for
court-ordered loan modification, He also rejected RTSC’s excuses
(miscommunication and an incompetent agent) for missing the
rescheduled mediation and declared RTSC in bad faith. As sanctions, he
directed that RTSC be denied the FMP certificate needed to conduct a
valid foreclosure sale and awarded the Holts their attorney fees.

Orally, Judge Mosley limited his order to the foreclosure sale
initiated by the 2009 NOD. He emphasized that denying the FMP
certificate “doesn't mean that [RTSC] can't go through the process again of
trying to foreclose.” The Holts’ counsel acknowledged the point (T

 

 
0

understand that you're not allowing an issuance of the certification, so the
foreclosure cannot proceed unless they start over again’), and the hearing
ended with this recap:

COUNSEL FOR THE HOLTS: So as I understand

it..., this matter is concluded .... Sanctions

were ordered for $3144.20 [in attorney fees}.

‘There will be no certificate issued by the

Mediation Administrator; therefore, they can't

proceed with foreclosure?

‘THE COURT: On this one. ‘They can restart the
process.

COUNSEL FOR THE HOLTS: They can start all
over again.

‘Terse “findings of fact, conclusions of law and order” followed.
‘These do not mention the oral limitation Judge Mosley put on his order,
stating only: (1) “the Respondent, Regional Trustee Services, Corp. was in
bad faith in that they failed to attend the [rescheduled] mediation”; (2) the

 

Holts “are to be reimbursed for costs and expenses in the amount of
$8,144.20"; and (3) “Letter of Certification shall not issue.” Neither side
appealed.

Meanwhile, the Holts continued to live in their house without
making payments, and on March 1, 2010, RTSC reinitiated nonjudicial
foreclosure by recording a second notice of default and election to sell (the
2010 NOD). ‘The 2010 NOD encompassed the monthly payment defaults
declared in the 2009 NOD (September 2008 to July 2009) and added those
that had occurred since (from July 2009 forward). RTSC also recorded a
notice of rescission of the 2009 NOD that stated, “this rescission shall not
in any manner be construed as waiving or affecting any breach or

default—past, present or future—under said Deed of Trust, ... but is, and

 

 
1 non oe

shall be deemed to be, only an election, without prejudice, not to cause a

 

le to be made pursuant to said [2009] Notice of Default

‘The Holts responded to the 2010 NOD by filing a second action
in district court, seeking to enjoin RTSC and One West from pursuing
foreclosure under it. They argued that the order denying the FMP
certificate carries claim- and issue-preclusive effect and permanently
prevents foreclosure, even though they continue to default on their
monthly house payments. In addition, the Holts elected FMP mediation
as to the 2010 NOD “out of an abundance of caution,” to protect their

 

rights should their first line of defense—claim and issue preclusion—fi

 

This second suit, which gives rise to this appeal, was assigned
to Judge Michelle Leavitt. After briefing and argument, she denied the
Holts’ application for injunctive relief and ordered FMP mediation to take
place within 90 days before the originally assigned mediator. The Holts
appealed. Mediation has been stayed pending briefing, argument, and
decision of the matter. While three loan modification mediations have
been scheduled, therefore, none has actually occurred.
Th

Denial of an FMP certificate does not, without more,
permanently preclude foreclosure. ‘The judicial review proceeding before
Judge Mosley halted the foreclosure sale noticed by the 2009 NOD, but it
did not preclude RTSC and One West from restarting the nonjudicial
foreclosure process via the 2010 NOD. The Holts’ contrary argument
misapprehends the claim- and issue-preclusion doctrines, as well as the
nature of nonjudicial foreclosure and FMP-mediation and judicial-review
proceedings. Additionally, claim and issue preclusion cannot enlarge an
order that the rendering judge expressly limited. Given the limitations
Judge Mosley placed on his sanction order, to the extent the order carries

 
preclusive effect, it inhibits the Holts’ challenge to the 2010 NOD, not the
2010 NOD itself. Because Judge Leavitt neither committed an error of

law nor abused her discretion in denying the Holts’ application for

injunctive relief, see University Sys. v, Nevadans for Sound Gov't, 120
Nev. 712, 721, 100 P.3d 179, 187 (2004), we affirm.
A

Claim and issue preclusion “protect the finality of decisions
and prevent the proliferation of liti
requirements aro met.” Redrock Valley Ranch v. Washoe County, 127
Nev. __, __, 264 P.3d 641, 646 (2011) (quoting Littlejohn v. United
States, 321 F.3d 915, 919 (9th Cir. 2003)). “Among other requirements, for

 

ation,’ but do not apply unless specific

[claim] preclusion to attach ... ‘the subsequent action [must be] based on
the same claims or any part of them that were or could have been brought
in the first case.” Id, (third alteration in original) (quoting Five Star
Capital Corp, v. Ruby, 124 Nev. 1048, 1054-55, 194 P.8d 709, 713 (2008)).
For “issue preclusion to attach, the issue decided in the prior [proceeding]
must be identical to the issue presented in the current [proceeding},” id.
{alterations in original) (quotation omitted), and have been “actually
litigated and determined by a valid and final judgment in which] the
determination [was] essential to the judgment.” In re Sandoval, 126 Nev.
__s __. 282 P.8d 422, 424 (2010) (quoting Restatement (Second) of
Judgments § 27 (1982). Claim and issue preclusion can apply in the

administrative context “[w]hen an administrative agency is acting in a

judicial capacity and resolves disputed issues of fact properly before it
which the parties have had an adequate opportunity to litigate,” United

 

 
as

 

States v. Utah Constr. Co,, 384 U.S, 394, 421-22 (1966),? and to defenses
and compulsory counterclaims, but “only to defenses which were available
in the prior action” (claim preclusion), 18 James Wm. Moore, Moore's
Federal Practice § 131.21{5]fa], at 191-53-181-54 (8d ed. 2011), and
actually asserted and necessarily decided (issue preclusion), id, §
131.21[5][b], at 131-65.

‘The Holts argue that the judicial review proceedings before
Judge Mosley extinguished RTSC’s and One West's “claim” to a
nonjudicial foreclosure remedy for the Holts’ defaults on the note. But as
the name implies, nonjudicial foreclosure is not a judicial “action,” giving
rrise to a claim or defense of foreclosure based on a mediation election and
the subsequent institution of FMP judicial review proceedings, See NRS
40.430(6)(e). It “occurs outside of the ‘range of procedures incident to
litigation,’ and instead involves act{s] unrelated to court authority.” Tom
v..GMAC Mortgage, LLC, No. 1000653 SOM/BMK, 2011 WL 2133705, at
*10 (D. Haw. May 25, 2011) (quoting Young v. Allstate Ins. Co,, 198 P.3d
666, 675 (Haw. 2008). RTSC's and One West's nonjudicial foreclosure
option—subject to the FMP requirements—was neither a defense to, or

*The Holts stop short of arguing that the statutorily mandated

mediation amounts to an administrative adjudication, with claim- and
issue-preclusive effect of its own. See -
Corp., 219 P.3d 12, 16 (NM. Ct. App. 2009) (the purpose of mediation “is
not to adjudicate or issue findings [but] instead ... to define, evaluate,
make recommendations on issues, and try to settle issues”; this fact,
‘combined with “the inherently informal nature of mediation proceedings
itself argues against applying res judicata to the end product of the
process”

 
obligatory counterclaim in, the judicial review proceedings the Holts
brought as to RTSC’s bad faith.

Ordinarily, a lender pursuing nonjudicial foreclosure has the
option under the loan documents “whether to declare a default, whether
and when to accelerate, and whether, having chosen to take advantage of
any of its {nonjudicial] remedies, to rescind the process before its
completion.” ‘Trident Center v. Connecticut General Life Ins,, 847 F.2d
564, 567 (9th Cir. 1988). A notice of rescission renders moot disputes
concerning the notice of default or its timing. Coley v, Accredited Home
Lenders, Inc., No. 4:10CV01870 JLH, 2011 WL 1193072, at *4 (E.D. Ark,
Mar. 29, 2011) (“Whether the Notice of Default was valid is moot because

the nonjudicial foreclosure sale described in the notice was cancelled.

 

‘Thus, [the party exer’

 

‘ing the power to sell] would be required by law to
le could take
place.”); Sakugawa_v, Mortgage Electronic Registration Systems, Inc,, No.
10-00028 JMS/BMK, 2011 WL 776061, at *6 (D. Haw. Feb, 25, 2011) (“the
Notice of Rescission moots Plaintiffs claims for equitable relief—there is,

file a new Notice of Default and Intention to Sell before

 

no existing controversy regarding the Notice of Foreclosure because it was
rescinded. . . . Although nothing prevents anyone from seeking foreclosure
on the subject property again... any defects in that subsequent action
‘would give rise to a separate claim from what is alleged in the Complaint,
which is based on this particular Notice of Foreclosure.”); Tabb v. One
West Bank, FSB, No. 3:10-CV-855-ST, 2011 WL 4448752, at *8 (D. Or.
Aug. 26, 2011) (quoting Coley and Sakugawa with approval). Rescission
and renotice are not, as the Holts declaim, without lender consequence,
‘Taking this path resets the right-to-cure and other time periods provided
by law for the debtor's protection, causing delay and additional losses, to

 

 
the extent the property is financially under water, at the lender’s expense.
‘See NRS 107.080(2)(b), (3).

NRS 107.086 adds mediation and procurement of an FMP
mediation certificate to the statutory prerequisites for a valid nonjudicial
foreclosure sale under NRS 107.080, when owner-occupied residential
property is involved. See NRS 107.086(2)(c) (a “trustee shall not exercise a

 

power of unless the trustee... (clauses to be recorded [an FMP
certificate stating either] that no mediation is required [or that] mediation
has been completed in the matter”), If the homeowner elects mediation,
the beneficiary of the deed of trust must participate in mediation in good
faith and produce the documents and information specified in NRS
107.086(4) and (6) and FMR 11 to earn a certificate permitting foreclosure
sale.’ See Pasillas v. HSBC Bank USA, 127 Nev. _, __, 255 P.3d 1281,
1286-87 (2011). The petition for judicial review affords a way to challenge
compliance with the statutory attendance, production, and good faith
requirements, FMR 21, But the proceeding is expedited, FMR 21(2), does
not require personal service, FMR 21(8), and exists “for the limited
purposes of determining bad faith, enforcing agreements made between
the parties within the Program, including temporary agreements, and
determining appropriate sanctions pursuant to NRS Chapter 107 as
amended.” FMR 21(1). When “an initial action {is} circumscribed
by... limitations [that] go to the very nature of the first action,” “ordinary

 

8The Foreclosure Mediation Rules became effective on June 30,
2009, and have been amended and renumbered since. ‘The amendments
do not change the substance of our analysis; for clarity, the citations in the
text are to the current Foreclosure Mediation Rules,

 

 
0 ae

claim-preclusion rules” do not apply. 18 C. Wright, A. Miller & E. Cooper,
Federal Practice and Procedure § 4412, at 305 (2d ed. 2002).

Nothing in the FMP statutes or rules suggests that denial of
an FMP certificate permanently costs a lender the security afforded by the
deed of trust. As Pasillas establishes, 127 Nev. at __, 256 P.3d at 1286-
87, denial of an FMP certificate follows automatically from a finding the

statutory FMP requirements have been shirked, see also Leyva_v,
National Default Servicing Corp., 127 Nev. _, __, 255 P.84 1275, 1278-

79 (2011) (such requirements are strictly construed). Tt is the bare
minimum sanction; a district court abuses its discretion if it does not order
the FMP certificate withheld for noncompliance with the FMP
requirements. Pasillas, 127 Nev. at _, 256 P.8d at 1286-87. The goal of
foreclosure mediation is to produce an agreed-upon loan modification. To

 

credit the Holts’ argument that any omission that leads to denial of an
FMP certificate should cost the lender its security and give the homeowner
the property free and clear would convert the mediation from «
cooperative endeavor to an antagonistic one and shift the focus from
finding consensus to finding fault. If this is the purpose of the FMP, the
Legislature needs to say so directly. While sanctions conceivably could be
imposed that would wipe out the lender's security—we do not decide this
issue since it is not presented—it would be up to the petitioner to allege

“The FMR were amended during the pendency of this appeal to limit
the potential abuse of the notice of rescission/new notice of default option,
by suspending the lender's right to pursue it after the homeowner has
elected FMP mediation but before the mediation has occurred, unless the
homeowner consents. FMR 8(3). Notably, the suspension is temporary—
pending mediation—not permanent.

 

10

 
and establish the propriety of such drastic sanctions and the reviewing
court to impose them explicitly, But the Holts, the petitioners here, did
not request, nor did Judge Mosley order, forfeiture of the security provided
by the deed of trust as a sanction in this case,

Because we do not equate denial of an FMP certificate with

loss of the right to exercise a power of sale under a new notice of default,

 

the Holts’ claim- and issue-preclusion arguments fail. RTSC’s and One
West's nonjudicial foreclosure rights were neither defenses to the Holts’
claims, nor the subject of compulsory counterclaims “that were or could
have been brought” in the judicial review proceedings before Judge
Mosley. Five Star Capital, 124 Nev. at 1054-55, 194 P.3d at 713; see 18
Moore's Federal Practice, supra, § 131.24{5]fa], at 131-79 (‘Th{e] ‘use or
lose’ approach [of claim preclusion doctrine] may be unworkable in
instances in which the court hearing the initial action does not have
jurisdiction to hear certain claims or to award certain types of relief, or the
nature of the claims and relief sought is limited by statute.” (citing
Restatement (Second) of Judgments § 26(¢) & emt. ¢ (1982))); see also G.C,
Wallace, Inc, v, Dist. Ct,, 127 Nev. __, __, 262 P.3d 1135, __ (2011)
(andlord who prevailed in summary eviction proceeding in justice court
was not precluded from suing separately for unpaid rent; it was “the sense
of the [statutory] scheme that the plaintiff should be permitted to split his

5Claim and issue preclusion generally require identity of parties.
Five Star Capital, 124 Nev. at 1064-55, 194 P.3d at 713. Because we reject,
the Holts’ claim- and issue-preclusion arguments on other bases, we do not
address the Holts’ failure to join One West as an additional respondent
with RTSC in the judicial review proceeding and whether this would
defeat preclusion against One West.

 

 
ne

 

claim” (quoting Restatement (Second) of Judgments § 26(1)(d) (1982).
And as for issue preclusion, the only issue “actually litigated and
determined” in the judicial review proceeding was that RTSC acted in bad
faith and would be penalized by having to pay the Holts’ attorney fees and
being denied an FMP certificate, As the right to foreclose based on the
Holts’ continuing defaults was not at is
apply. In.re Sandoval, 126 Nev. at __, 232 P.3d at 424.
B
An additional basis exists for upholding Judge Leavitt's

 

ie, issue preclusion does not

refusal to enjoin RTSC and One West from pursuing foreclosure under the
2010 NOD: “[T}he general rule of claim preclusion does not apply if the
court in the first action expressly reserves the right to maintain a second
action” or defense, 18 Federal Practice and Procedure, supra, § 4413, at
314 (citing Restatement (Second) of Judgments § 26(1)(b)); “[t]he same
rule should hold for issue preclusion.” Id, § 4424.1, at 642; see Central
States, SE and SW Areas Pen. v, Hunt Truck, 296 F.3d 624, 629 (7th Cir.
2002). In declaring RTSC in bad faith, awarding fees, and directing that

 

the certificate not issue, Judge Mosley expressly stated that RTSC could
restart the foreclosure process. ‘The Holts ignore this statement (and their
‘counsel's acknowledgment of it), perhaps assuming it is irrelevant since it
was oral and did not make it into the written findings of fact and
‘conclusions of law. But a court may consult the record and proceedings
giving rise to another court's order, at least when the latter is ambiguous.
First Union Nat. Bank v. Pictet Overseas Trust, 477 F.3d 616, 620 (Sth
Cir, 2007) (citing Oklahoma v. Texas, 256 U.S. 70, 88 (1921)); see City of
Lakewood v. Pierce County, 30 P.8d 446, 450-51 (Wash. 2001) (oral
pronouncements that were consistent with a judgment may be considered
in construing it). As we have discussed, nothing in the written order

12

 
directing denial of an FMP certificate requires the sweeping preclusion for
which the Holts contend; the written order's silence on the point at the
very least renders it ambiguous. This made it appropriate for Judge
Leavitt to look to Judge Mosley’s oral statements in interpreting the seope
of his sanction order.

Because sanction proceedings tend to be summary,
courts proceed cautiously in attributing preclusive effect to them.
See Lightning Lube, Inc. v. Witeo Corp, 4 F.3d 1163, 1197 (8d
Cir, 1993); Cohen _v. Lupo, 927 F.2d 363, 365 (Sth Cir 1991); but
see Reilly v, Natwest Markets Group, Inc, 178 F. Supp. 2d 420,
425-26 (S.D.N.Y. 2001) (applying claim preclusion to bar subsequent
litigation requesting expanded sanctions for conduct for which
lossor Fed. R. Civ, P, 37 sanctions had been awarded in prior
litigation), To the extent the judicial review proceedings before Judge
Mosley may command preclusive effect, the limits he placed on his order

defeat the Holts’ position on this appeal. Claim- and issue-preclusion

 

doctrines are not concerned with whether the decision in the prior
proceeding was right or wrong.’ If the Holts were aggrieved by Judge
Mosley’s failure to impose harsher sanctions than he did, the remedy was
to appeal his order, not to seck to enlarge it by bringing a second
proceeding before a different district court judge. See Hudson v. Hedge, 27

“The Holts’ failure to appeal the order entered by Judge Mosley also
makes procedurally improper their criticism of the ighth Judicial District
Court's assignment of all FMP judicial review proceedings to a single
district court judge. See also EDCR 1.30(b)(6) (requiring the chief judge to
“{mJake regular and special assignments of all judges’.

  

 

 
F.8d 274, 276 (7th Cir. 1994) (plaintiff “cannot use a new suit to contend
that the disposition of the first was mistaken’),
cG

‘The Holts’ final argument contests Judge Leavitt's order
directing that FMP mediation occur. Given that the Holts specifically
requested mediation as to the 2010 NOD, albeit “out of an abundance of
caution,” we find no error in this order. We therefore dissolve the stay and
affirm,