A title insurer in Nevada was sued following a homeowner association (HOA) foreclosure of property.
The district court in Nevada determined the lien occurred after the issuance of the title insurance policy, but it did not dismiss the case.
The case is Wilmington Trust v. Commonwealth Land Title Insurance Co. (U.S. District Court, D. Nevada, 18-cv-02023).
The case concerns property bought in Las Vegas on April 28, 2006, with SFG Mortgage as the lender and, eventually, Wilmington Trust as the beneficiary in 2014. In September 2011 the Sable Oaks Manor Homeowners Association recorded a notice of delinquent assignment and ultimately foreclosed on the property. It sold the property to Red Lizard Productions, LLC on Dec. 5. 2012.
Wilmington Trust said it notified Commonwealth of Red Lizard’s claim of a superior lien in October 2014, and requested indemnity and defense. Commonwealth denied the claim because the HOA lien was created after the title policy was issued.
Wilmington later settled its claim against Red Lizard but not after the company said it incurred significant attorney’s fees and costs.
At the heart of the complaint is whether the HOA lien was created before or after the title policy was issued in 2006.
The Policy’s preamble states that it insures “as of Date of Policy shown in Schedule A,” which in this case was April 28, 2006. Paragraph 3(d) of the “Exclusions from Coverage,” in relevant part, states:
“The following matters are expressly excluded from the coverage of this policy and the company will not pay loss or damage, costs, attorneys’ fees or expenses which arise by reason of: 3. Defects, liens, encumbrances, adverse claims or other matters; ... (d) attaching or created subsequent to date of policy...
“Exception 15 declares the Policy does not insure against loss of damage by reason of: The right to levy certain charges or assessments against said land which shall become a lien if not paid as set forth in the above declaration of restrictions, and is conferred upon Sable Oaks Manor Homeowners Association ... including any unpaid delinquent assessment as provided therein.”
Commonwealth argued that because the HOA lien was recorded in 2011, the policy could not have covered damages associated with the foreclosure. However, Wilmington argued the lien was recorded and perfected with the recordation of CC&Rs on June 22, 2005.
“Upon review of the policy’s language and NRS 116.3116, the court agrees with defendant and finds that the HOA lien arose after the date of the policy,” the district court wrote. “NRS 116.3116(1) guides the court’s conclusion, because it states that ‘[t]he association has a lien on a unit for ... any assessment levied against that unit or any fines imposed against the unit’s owner from the time the ... assessment or fine becomes due.’ Nev. Rev. Stat. 116.3116(1).”
However, the court did not grant Commonwealth’s motion to dismiss.
It followed by saying Wilmington cited Endorsement 100 of the policy and how it could affect the decision. One of those portions states that insurance extends to:
“[a]ny future violation on the land of any covenants, conditions or restrictions occurring prior to acquisition of title to the estate or interest referred to in Schedule A by the insured, provided such violations result in impairment or loss of the lien of the mortgage referred to in Schedule A.”
Although Commonwealth pointed to the CC&Rs’ own language – stating that a violation shall not defeat nor render invalid the lien of any mortgage or deed of trust made in good faith and for value – the court said it did not address how the CC&Rs interact with NRS 116.1206, and how that interaction might affect Endorsement 100.
The court cited NRS 116.1206 as stating: “Any provision contained in a declaration, bylaw or other governing document of a common-interest community that violates the provisions of this chapter ... shall be deemed to conform with those provisions by operation of law, and any such declaration, bylaw or other governing document is not required to be amended to conform to those provisions.... [and] is superseded by the provisions of this chapter …”
“Without defendant addressing how NRS 116.1206 could not impact the policy’s coverage, the court cannot fully rule on the merits of plaintiff’s breach of contract claim,” the district court wrote. “Notably, at this time the court takes no position on NRS 116.1206’s interaction with Endorsement 100 and the policy, and defendant is not foreclosed from addressing this issue in full through future arguments.”
The court did grant a motion to dismiss on Wilmington’s claim for breach of fiduciary duties, saying Nevada does not recognize a stand-alone claim for breach of fiduciary duties in the context of this case, and because Wilmington brought an independent claim for breach of the duty of good faith and fair dealing.
However, it allowed the remainder of Wilmington’s claims to stand, because Wilmington argued that each of the causes of action rely on a finding that the policy provides coverage for circumstances where the HOA’s lien is in a superior position as that of Wilmington’s.
“In light of the court’s denial of defendant’s current motion to dismiss on the specific issue of the policy’s coverage, the court similarly denies defendant’s motion to dismiss as to plaintiff’s remaining causes of action, though defendant is not foreclosed for asserting its same arguments in future filings,” the district court concluded.