Branch Banking v. Windhaven & Tollway, LLC (Nev. Supreme Ct. – Apr. 30, 2015)

NRS 40.455(1) permits a creditor or deed-of-trust beneficiary who is unable to fully recover its investment through foreclosure to bring an action for a deficiency judgment after the foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively.

The issue is whether NRS 40.455(1) precludes a deficiency judgment when the beneficiary nonjudicially forecloses upon property located in another state and the foreclosure is conducted pursuant to that state’s laws instead of NRS 107.080.

In 2007, Windhaven & Tollway, LLC, borrowed nearly $17 million from Branch Banking and Trust Company’s predecessor-in-interest. The loan was secured by various assets, including real property located in Texas. The parties agreed that Nevada law would govern the note and that the courts in Clark County, Nevada, and Collin County, Texas, would have jurisdiction over future disputes. The remaining guarantors (collectively referred to as the Guarantors) entered into a guaranty agreement to pay any debt remaining if Windhaven defaulted.

Windhaven defaulted on the loan, and Branch Banking sent it and the Guarantors a demand letter requesting repayment. Four months later, Branch Banking mailed Windhaven and the Guarantors a notice of trustee’s sale, stating that it would foreclose on the Texas property if payment was not received. Windhaven and the Guarantors failed to remit payment and the property was sold at a nonjudicial foreclosure sale under Texas law for $14,080,000. At that time, the total indebtedness remaining on the loan was $16,675,218.61. Branch Banking then sought a deficiency judgment against Windhaven and the Guarantors under Nevada law, asserting claims for breach of guaranty and breach of the implied covenant of good faith and fair dealing.

Following discovery, Branch Banking moved for summary judgment, but before the district court could rule on the motion, Windhaven and the Guarantors also moved for summary judgment, on the ground that Branch Banking’s deficiency action was precluded by NRS 40.455(1) because that statute requires all nonjudicial trustee’s sales to be conducted pursuant to NRS 107.080. The district court granted summary judgment in favor of Windhaven and the Guarantors, finding that Branch Banking’s nonjudicial foreclosure in Texas did not comply with the terms of NRS 107.080 because Branch Banking did not record a notice of breach and election to sell or provide notice in accordance with NRS 107.080. The district court also concluded that Branch Banking could have sought a deficiency judgment in Texas or conducted the Texas trustee’s sale in a manner that complied with NRS 107.080. Further, the district court ruled that because NRS 40.455(1) prohibited Branch Banking from seeking a deficiency award against Windhaven, Branch Banking could not seek a deficiency judgment against the Guarantors. Branch Banking appealed.

The parties disputed whether NRS 40.455(1)’s phrase “trustee’s sale held pursuant to NRS 107.080” permits a deficiency judgment in Nevada when a nonjudicial foreclosure takes place in another state and the beneficiary of the deed of trust does not comply with the requirements of NRS 107.080. Windhaven argued that the clause requires that a trustee’s sale comply with Nevada law before the beneficiary of the deed of trust may seek a deficiency judgment. Branch Banking argued that the clause is merely illustrative, that the statutory scheme does not support Windhaven’s interpretation, and that to interpret the statute to require out-of-state nonjudicial foreclosures to comply with NRS 107.080 would lead to absurd results.

The Nevada Supreme Court explained that NRS 40.455 governs applications for deficiency judgments by “the judgment creditor or the beneficiary of the deed of trust,” made within six months ”after the date of the foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively.” Because “foreclosure sale” is specifically tied to “judgment creditor,” the foreclosure sale described in the statute is a judicial foreclosure.

However, the Court did not agree that the statute limits deficiency judgments to judicial foreclosures and trustee’s sales held in accordance with NRS 107.080. NRS 40.455(1) has no such limiting language. While it clearly governs deficiencies arising from judicial foreclosures and those trustee’s sales that are held pursuant to NRS 107.080, it does not indicate that it precludes deficiency judgments arising from nonjudicial foreclosure sales held in another state.

Furthermore, common law allows a lienholder to seek a deficiency judgment against the person(s) liable on the lien, and the Court declined to interpret NRS 40.455 in such a way that would interfere with this common-law right, when the statute does not expressly limit deficiency suits arising from nonjudicial foreclosures conducted pursuant to the laws of another state.

Because NRS 40.455 does not prohibit deficiency judgment actions from being brought in Nevada when the nonjudicial foreclosure in another state did not comply with NRS 107.080, the Court concluded that the district court erred in precluding Branch Banking from pursuing a deficiency judgment against Windhaven and the Guarantors.