Can a bank recover a deficiency from a court appointed receiver’s sale of real property securing a $20.15 million loan?

foreclosure

U.S. Bank Nat’l Ass’n v. Palmilla Dev. Co. (Nev. Supreme Ct. – Mar. 5, 2015)

“Palmilla Development Co., took out a loan for $20.15 million from the predecessor-in-interest of appellant U.S. Bank. The loan was secured by a deed of trust on a development of townhomes and personally guaranteed by respondent Hagai Rapaport, Palmilla’s president. U S Bank became the legal holder of the loan note and all beneficial interest under thefl deed of trust, following which Palmilla defaulted and Rapaport failed to fulfill his guarantor obligations. U.S. Bank then instituted an action seeking to appoint a receiver in order to collect rents from, to market, and to sell the secured property.”

Following the district court’s approval of U S Bank’s request, the receiver, through a real estate marketing company, listed the subject property and, over the course of several months, obtained 31 offers to purchase the property. From these offers, the receiver identified what it believed to be the best offer and entered into a purchase and sale agreement with that third-party purchaser for $9.5 million on February 5, 2010. U.S. Bank filed a motion to approve the sale, which the district court granted on March 26, 2010. Escrow closed on June 7, 2010, when the purchaser paid the agreed upon price and obtained the deed to the property.

The bank filed an amended complaint seeking the recover the deficiency from the proceeds of the receiver’s sale. Palmilla filed a motion for summary judgment arguing that that the relief sought in the amended complaint was, in essence, an application for a deficiency judgment under NRS 40.455(1), which U.S. Bank was precluded from seeking because (1) the receiver sale was not a “foreclosure sale or trustee’s sale held pursuant to NRS 107.080,” and absent either of those two types of sales, NRS 40.455(1) does not permit a deficiency judgment; and (2) even if NRS 40.455(1) could be used to seek a deficiency judgment following a receiver sale of real property securing a loan, U.S. Bank failed to comply with the section’s time frame for so seeking.

The district court granted Palmilla’s motion, holding that, although U.S. Bank could utilize NRS 40.455(1) to seek a deficiency judgment following a receiver sale of real property securing a loan, U.S. Bank had to abide by NRS 40.455(1)’s six-month time frame in so doing, and that more than six months had passed between the date U.S. Bank filed its amended complaint and the date the district court approved the purchase and sales agreement.

On appeal, the Nevada Supreme Court held that a receiver sale of real property securing a loan is a “foreclosure sale” within the meaning that NRS 40.455(1) and that NRS 40.455(1) governs actions for deficiency judgments following a receiver sale of real property securing a loan. The court further held that in the context of receiver sales of real property securing loans, it is not until the actual exchange of money, the close of escrow, that NRS 40.455(1)’s six-month time limit begins.

The Court reversed and remanded the matter noting that less than six months had elapsed between the payment of funds on June 7, 2010, and U.S. Bank’s application for a deficiency judgment on November 24, 2010, U.S. Bank complied with NRS 40.455(1)’s requisite time frame.

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