Court Opinion

ID: 5133409
Source: CourtListenerOpinion
Date Created: 2021-12-09 17:14:47.450089+00
Date Added: 2024-06-11T08:23:37.000115
License: Public Domain

135 Nev., Advance Opinion          I
                         IN THE SUPREME COURT OF THE STATE OF NEVADA

                  VEGAS UNITED INVESTMENT                                  No. 74163
                  SERIES 105, INC., A NEVADA
                  DOMESTIC CORPORATION,
                  Appellant,
                  vs.
                  CELTIC BANK CORPORATION,
                                                                           FILED
                  SUCCESSOR-IN-INTEREST TO                                 DEC 1 9 2919
                  SILVER STATE BANK BY
                  ACQUISITION OF ASSETS FROM THE                               SU      COURr

                  FDIC AS RECEIVER FOR SILVER                         BY
                                                                            DEPUTY CLERK
                  STATE BANK, A UTAH BANKING
                  CORPORATION ORGANIZED AND IN
                  GOOD STANDING WITH THE LAWS
                  OF THE STATE OF UTAH,
                  Respondent.

                             Appeal from a district court judgment following a bench trial in
                  a judicial foreclosure action. Eighth Judicial District Court, Clark County;
                  Susan Johnson, Judge.
                             Affirmed.

                  Roger P. Croteau & Associates, Ltd., and Roger P. Croteau and Timothy E.
                  Rhoda, Las Vegas,
                  for Appellant.

                  Sylvester & Polednak, Ltd., and Allyson R. Noto and Kelly L. Schmitt, Las
                  Vegas,
                  for Respondent.

                  BEFORE HARDESTY, STIGLICH and SILVER, JJ.
SUPREME Cam-
     OF
   NEMO*

(0) 1947A aarto
                                                                                /1-5131,3
                                                 OPINION

                By the Court, STIGLICH, J.:
                             NRS Chapter 116 codifies the Uniform Common-Interest
                Ownership Act and sets forth statutory regulations applying to common-
                interest communities in Nevada, such as property owners associations
                (P0As). NRS Chapter 116 generally applies to all residential Nevada
                POAs—i.e., homeowners' associations (HOAs)—but does not automatically
                apply to nonresidential POAs. Nonresidential POAs may elect to apply such
                provisions by expressly incorporating NRS Chapter 116s provisions, either
                in whole or in part. As this incorporation is elective, NRS Chapter 116
                applies to nonresidential POAs only to the extent provided for by the
                incorporated statutory provisions.
                             Here, the conditions, covenants, and restrictions (CC&Rs) of the
                subject nonresidential property state that the association may enforce
                delinquent assessment liens pursuant to NRS 116.3116-.31168. The
                CC&Rs only incorporated NRS 116.3116-.31168,1 however, and not the
                entirety of NRS Chapter 116. Specifically, the CC&Rs did not incorporate
                the provisions that might invalidate a mortgage savings clause or provide
                for assessments supporting a lien that would have superpriority status.
                Appellant Vegas United Investment Series 105, Inc., purchased the

                      1The 2015 Legislature substantially revised NRS 116.3116-.31168.
                2015 Nev. Stat., ch. 266, §§ 1-7, 9, at 1333-45, 1349. Any discussion in this
                opinion regarding these statutes as they applied to the nonjudicial
                foreclosure sale here refers to the version of statutes in effect before those
                amendments, when the foreclosure sale took place. See Saticoy Bay LLC
                Series 350 Durango 104 v. Wells Fargo Home Mortg., 133 Nev. 28, 28 n.2,
                388 P.3d 970, 971 n.2 (2017).
SUPREME COURT
        OF
     NEVADA
                                                      2
(0) 1947À
                property at a foreclosure sale conducted pursuant to the procedures set
                forth in NRS 116.3116 in foreclosing on delinquent POA assessment liens.
                Because the lien did not have a superpriority portion and the mortgage
                savings clause, which provided that foreclosure on a delinquent assessment
                lien would not affect the priority of a prior mortgage, was still valid,
                respondent Celtic Bank's existing mortgage on the subject property was not
                extinguished. The district court therefore reached the correct outcome
                when it determined that Vegas United took the property subject to Celtic
                Bank's interest, and we affirm.
                                  FACTS AND PROCEDURAL HISTORY
                             In 2005, nonparty Gibson Road, LLC, borrowed $748,000 from
                Celtic Bank's predecessor-in-interest in order to buy commercial property
                located in Henderson, Nevada. Gibson Road executed a first priority deed
                of trust to secure payment of the note. The note and deed of trust were
                assigned to Celtic Bank in 2009. The property purchased is located within
                two common-interest communities (CICs) that encompass the same
                business park, Gibson Business Park Property Owners Association (Park
                POA) and Gibson Business Center Property Owner's Association, Inc.
                (Center POA), each of which has adopted CC&Rs. Center POA adopted
                CC&Rs in 2004.2
                             Gibson Road failed to pay both its POA assessments and its
                mortgage. In 2011, Center POA's agent Red Rock Financial Services

                     2Park POA separately adopted CC&Rs in 1989 and amended them in
                1994. Its CC&Rs are not at issue here.

SUPREME COURT
        OF
     NEVADA

(0) 1947A
                                                    3
                recorded a lien for delinquent assessments and then a notice of default.3 In
                February 2014, Red Rock recorded and posted a notice of foreclosure sale,
                announcing a March 2014 sale date. Vegas United was the high bidder at
                the nonjudicial foreclosure sale with a bid of $30,000. In March 2015, Celtic
                Bank recorded a notice of default for nonpayment of mortgage payments
                and subsequently filed a complaint for judicial foreclosure of the property.
                Vegas United counterclaimed to quiet title, alleging that the nonjudicial
                foreclosure extinguished Celtic Bank's deed of trust, and asserted a slander
                of title claim.
                             The district court conducted a bench trial and entered a
                judgment in favor of Celtic Bank. The district court ruled that the CC&Rs
                incorporated the procedures for enforcing delinquent assessment liens from
                NRS 116.3116-.31168 but not the substantive provisions pertaining to the
                priorities of competing security interests. Accordingly, the district court
                concluded that the foreclosure sale did not extinguish Celtic Bank's deed of
                trust and that the Bank was entitled to foreclose on its first security
                interest. Vegas United now appeals.
                                              DISCUSSION
                             Vegas United argues on appeal that the 2014 nonjudicial
                foreclosure was conducted pursuant to the 2004 CC&Rs and NRS 116.3116-
                .31168, the delinquent assessment lien accordingly had superpriority

                      3The   lien referenced CC&Rs with instrument number
                1994024000285, which does not correspond with any recorded CC&Rs in
                Nevada. The 1994 amendment to Park PONs CC&Rs has instrument
                number 19941024000285. As we resolve this appeal on other grounds, we
                do not address whether this error affected the adequacy of the notice
                provided or the validity of the foreclosure sale.

SUPREME COURT
     OF
   NEVADA

(0) 1947A 40,
                    status, the CC&Rs mortgage savings clause was unenforceable as a matter
                    of law, and Center POA's nonjudicial foreclosure sale therefore extinguished
                    Celtic Bank's deed of trust.4
                                Following a bench trial, we review the district court's legal
                    conclusions de novo and uphold its factual findings so long as they are not
                    clearly erroneous and are supported by substantial evidence. Wells Fargo
                    Bank, N.A. v. Radecki, 134 Nev. 619, 621, 426 P.3d 593, 596 (2018).
                    The CC&Rs partially incorporated provisions from NRS Chapter 116
                                We use the rules governing contract interpretation to interpret
                    a CIC's declaration of its CC&Rs. Diaz v. Ferne, 120 Nev. 70, 73, 84 P.3d
                    664, 665-66 (2004). When the facts are not disputed, contract interpretation
                    is subject to de novo review as a question of law. Id. at 73, 84 P.3d at 666.
                    "Contractual provisions should be harmonized whenever possible,"Eversole
                    v. Sunrise Villas VIII Homeowners Ass'n, 112 Nev. 1255, 1260, 925 P.2d 505,
                    509 (1996), and no provision should be rendered meaningless, Musser v.
                    Bank of Am. , 114 Nev. 945, 949, 964 P.2d 51, 54 (1998).
                                NRS Chapter 116 only applies to a nonresidential CIC—that is,
                    properties subject to a nonresidential POA—to the extent that the
                    community's declaration incorporates NRS Chapter 116s provisions in
                    whole or in part pursuant to NRS 116.12075. NRS 116.1201(1), (2)(b);
                    Boulder Oaks Cmty. Ass'n v. B & J Andrews Enters., LLC, 125 Nev. 397,
                    404, 215 P.3d 27, 31 (2009). By so stating in its declaration, a POA may
                    elect to apply either (a) the entirety of NRS Chapter 116, (b) specifically

                          Wegas United also argues that the foreclosure notices were sufficient
                    and that Celtic• Bank's payment of the property's outstanding tax liability
                    was irrelevant. Because these issues do not affect our disposition, we
                    decline to address them.
SUPREME COURT
        OF
     NEVADA

(o) 1947A    4.0,
                                                         5
                NRS 116.001-.2122 and NRS 116.3116-.31168, or (c) exclusively NRS
                116.3116-.31168. NRS 116.12075(1); see also NRS 278A.170 (providing that
                a CIC may apply the procedures set forth in NRS 116.3116-.31168 to enforce
                payment of association common-space maintenance assessments).
                            Center PONs CC&Rs comport with this statutory scheme and
                incorporate NRS 116.3116s delinquent assessment lien enforcement
                procedure. Recital D of the CC&Rs provides that real property within the
                POA shall only be subject to NRS Chapter 116 to the extent permitted by
                NRS 278A.170, which permits incorporating the chapter's assessment
                payment enforcement provisions. Section 10.2 of Center PONs CC&Rs
                provides that the POA may record a delinquent assessment lien and
                foreclose upon it "pursuant to a sale• conducted in accordance with the
                provisions of (i) Covenants Nos. 6, 7 and 8 of NRS 107.030 and/or (ii) NRS
                116.3116 to NRS 116.31168, inclusive, or any successor laws hereafter in
                effect." While NRS 107.030 is not at issue here, Section 10.2 partially
                incorporated NRS Chapter 116 in the CC&Rs, electing to apply NRS
                116.3116-.31168 but no other provisions of NRS Chapter 116. See NRS
                116.12075(1) (providing that a POA electing to adopt provisions of NRS
                Chapter 116 may designate either NRS 116.3116-.31168 or two other sets
                of provisions). Where a contract incorporates a statutory provision by
                reference, that statutory language is interpreted as though set out in the
                contract just as any other contract term. 11 Williston on Contracts § 30:19
                (4th ed. 2012). Accordingly, Section 10.2 incorporated the NRS 116.3116
                delinquent lien enforcement procedures, qualified by Section 10.2s
                subsequent statement that such a lien shall not be valid as against a prior-

SUPREME COURT
        OF
     NEVADA

(0) 1447A
                                                     6
                    recorded mortgagee.5 See Rd. & Highway Builders, LLC v. N. Nev. Rebar,
                    Inc., 128 Nev. 384, 390, 284 P.3d 377, 380 (2012) (providing that contracts
                    must be read as a whole to avoid negating any provision). Therefore, the
                    nonjudicial foreclosure sale was conducted pursuant to the procedure set
                    forth in NRS 116.3116-.31168, as constructed with regard to the CC&Rs as
                    a whole.6
                    Mortgage savings clauses are not necessarily unenforceable in
                    nonresidential POAs
                                 In applying NRS 116.3116 here, we must resolve the apparent
                    conflict between NRS 116.3116(2)s superpriority provision and the
                    mortgage savings clause contained in the CC&Rs, which purported to
                    prevent an action pursuant to an enforcement mechanism set forth in the
                    CC&Rs from invalidating a preexisting mortgage.

                          5Section   10.2 of the 2004 CC&Rs specifically provides:

                                 The Lien provided in this Section shall not be valid
                                 as against a bona fide purchaser (or bona fide
                                 Mortgagee) of the Lot in question unless the Lien
                                 shall have been filed in the Public Records prior to
                                 the recordation in the Public Records of the deed (or
                                 Mortgage) conveying the Lot in question to such
                                 purchaser (or subjecting the same to such
                                 Mortgage).
                          6The   district court erroneously concluded that the incorporation of
                    NRS 116.3116 cannot include the superpriority effects when NRS 116.3116
                    is incorporated through reference from NRS 278A.170 because NRS
                    278A.170 does not discuss the priority of such liens. As we acknowledge
                    above, where a statutory provision is incorporated by reference, each part
                    of that provision is treated as though it were written in the contract as a
                    term. Because we affirm on different bases, this error does not affect our
                    disposition.

SUPREME COURT
        OF
     NEVADA

(0) 1947A    .40.
                                                          7

            Molgt
                               First, we conclude that mortgage savings clauses are not
                   necessarily unenforceable in CC&Rs for a nonresidential POA. While this
                   court has held that a mortgage savings clause in HOA CC&Rs is
                   unenforceable as against NRS 116.3116(2)s superpriority provision, that
                   decision rested on both the application of NRS 116.1104, which precluded
                   any contractual provision from curtailing the application of NRS Chapter
                   116, and the applicability of the entirety of NRS Chapter 116 to residential
                   CICs. SFR Invs. Pool 1, LLC v. U.S. Bank, N.A., 130 Nev. 742, 757-58, 334
                   P.3d 408, 418-19 (2014). Here, the Center POA's CC&Rs incorporated only
                   NRS 116.3116-.31168, and such limited incorporation is permitted by
                   statute. Accordingly, the basis relied upon in SFR Investments is not
                   present here, and the CC&Rs must be interpreted to give force to both
                   provisions, harmonizing their meaning without negating either.7
                   Where CC&Rs permit both foreclosure of delinquent assessment liens and
                   mortgage savings clauses, such provisions must be harmonized
                               The Center POA's CC&Rs emphasize that enforcement of a
                   delinquent assessment lien should not impair a prior recorded mortgage.
                   Article XIII of Center POA's CC&Rs provides that:
                               No violation of any provision of this Declaration,
                               nor any remedy exercised hereunder, shall defeat
                               or render invalid the lien of any Mortgage made in
                               good faith and for value upon any portion of the
                               Project, nor shall any Lien created hereunder be
                               superior to any such Mortgage unless such Lien
                               shall have been recorded in the Public Records prior

                        70ur   conclusion in this regard is limited to nonresidential POAs
                   electing to apply NRS 116.3116-.31168 pursuant to NRS 116.12075(1)(c),
                   without encompassing nonresidential POAs that choose to incorporate
                   provisions of NRS Chapter 116 pursuant to NRS 116.12075(1)(a)-(b). Such
                   broader incorporation of NRS Chapter 116 may fall within SFR
                   Investments reasoning.
SUPREME COURT
     OF
     NEVADA

(0) 1447A   .;S>
                                                        8
            to the recordation in the Public Records of such
            Mortgage; provided however, that any Mortgagee
            or other purchaser at any trustees or foreclosure
            sale shall be bound by and shall take its property
            subject to this Declaration as fully as any other
            Owner of any portion of the Project.
Section 10.2 qualifies the exercise of the NRS 116.3116 procedure by stating
that a lien so enforced "shall not be valid" as against a prior recorded
mortgage. NRS 116.3116(2) (2013) itself relevantly states this:
            A lien under this section is prior to all other liens
            and encumbrances on a unit except:
            •• •
                (b) A first security interest on the unit
           recorded before the date on which the assessment
           sought to be enforced became delinquent . . .

           The lien is also prior to all security interests
           described in paragraph (b) to the extent of any
           charges incurred by the association on a unit
           pursuant to NRS 116.310312 and to the extent of
           the assessments for common expenses based on the
           periodic budget adopted by the association
           pursuant to NRS 116.3115 which would have
           become due in the absence of acceleration during
           the 9 months immediately preceding institution of
           an action to enforce the lien . . . .
NRS 116.3116(2) indicates that the superpriority exception against first
security interests applies to certain charges and expenses incurred
pursuant to NRS 116.310312 or NRS 116.3115. Neither of these statutes
applies to Center PONs CC&Rs, however, because neither statute was
among those statutes incorporated from NRS Chapter 116. Whatever
assessment payments were due pursuant to Center PONs CC&Rs, those
assessment payments did not rest on a statutory basis encompassed by NRS
116.3116(2). As such, no portion of the delinquent assessment lien

                                     9
               foreclosed upon had superpriority status pursuant to NRS 116.3116(2) as
               against Celtic Bank's prior recorded deed of trust. Moreover, to read NRS
               116.3116(2)—as incorporated here as a covenant in the CC &Rs—to impair
               the priority of Celtic Bank's deed of trust would conflict with Article XIII of
               Center PONs CC&Rs and result in an unharmonious interpretation of the
               CC&Rs. Accordingly and consistent with the intent expressed in the
               mortgage savings clause to not impair prior recorded mortgages, the district
               court reached the correct disposition when it ruled that Vegas United took
               its interest subject to Celtic Bank's deed of trust when it purchased the
               property. See Saavedra-Sandoval v. Wal-Mart Stores, Inc., 126 Nev. 592,
               599, 245 P.3d 1198, 1202 (2010) (affirming a district court order reaching
               the correct result, albeit for the wrong reason).
                                              CONCLUSION
                           Because Center POA's CC&Rs expressly elected to apply NRS
               116.3116-.31168, those provisions were incorporated in the CC&Rs. No
               other provisions of NRS Chapter 116 were incorporated, however, as that
               statutory scheme envisions elective incorporation, either in part or in whole,
               by nonresidential POAs. Accordingly, NRS 116.1104 did not apply to render
               the CC &Rs mortgage savings clause unenforceable, nor did the CC&Rs
               apply other NRS Chapter 116 provisions supporting assessments that
               would have superpriority status pursuant to NRS 116.3116(2). As a result,
               no portion of the delinquent POA assessment lien had superpriority status
               as against Celtic Bank's first security interest. Therefore, Vegas United

SUPREME COUR
        o
     NEVADA

OD, 1947A
                                                    10
                took its interest subject to Celtic Bank's deed of trust. We affirm the district
                court's order.

                                                                 k_„'LS2
                                                      Stiglich

                We concur:

                                                 J.

                                                 J.
                Silver

SUPREME COURT
        OF
     NEVADA
                                                       11
(01 l947A