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The Legal Description > News > Nevada Supreme Court hears coverage dispute over HOA foreclosure

Nevada Supreme Court hears coverage dispute over HOA foreclosure

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Court Report
Monday, November 6, 2023

The Supreme Court of Nevada recently heard an appeal from a district court order granting a motion for summary judgment in an insurance coverage and bad faith dispute arising out of an homeowners’ association foreclosure.

The case is PennyMac Corp. v. Westcor Land Title Insurance Co. (Supreme Court of Nevada, No. 83737).

In 2006, Loretto Bay-Bella Lago Homeowners Association (the HOA) recorded a declaration of covenants, conditions, and restrictions (CC&Rs) in Clark County, Nev., requiring owners of lots within the HOA to pay HOA assessment fees. After this, nonparties purchased a home within the HOA secured by a first deed of trust. On Jan. 26, 2007, Westcor Land Title Insurance Co. issued a title policy for the mortgage lender. The homeowners failed to pay their HOA assessments beginning in 2010. The HOA then recorded a notice of delinquency assessment lien and later sold the property pursuant to NRS Chapter 116. Because the HOA assessment lien was a priority lien, the sale extinguished the first deed of trust. Two years after the HOA sale, the interest in the deed of trust was assigned to PennyMac.

PennyMac then submitted a written claim to Westcor, requesting reimbursement under the title policy. It argued that the title policy’s standard endorsements and three endorsements developed by the California Land Title Association, including CLTA 115.2, CLTA 100(1)(a), and CLTA 100(2)(a), insured its loss. Westcor denied the claim.

PennyMac then filed suit against Westcor, seeking declaratory judgment as to coverage under the policy. It alleged that Westcor breached the insurance contract in bad faith. Westcor moved for summary judgment, arguing that the policy did not cover PennyMac’s loss because the HOA superpriority lien arose after the date of the policy. The lower court granted Westcor’s motion and issued discovery sanctions against PennyMac for failing to comply with Westcor’s discovery requests.

The Supreme Court of Nevada affirmed the lower court’s decision.

“Title insurance indemnifies the insured against losses caused by encumbrances on, or defects to, the title at the time that ownership or interest is transferred,” the court stated. “Thus, title insurance does not indemnify the insured against future events. Although PennyMac argues that CLTA 115.2, CLTA 100(1)(a), and CLTA 100(2)(a) cover its losses, under Deutsche Bank, there is no set of facts that would provide coverage under the argued insurance provisions, since the HOA’s superpriority lien arose when the assessments became due, after the date of the policy, and the HOA foreclosure sale, terminating the first deed of trust, also occurred after the date of the policy. Accordingly, the district court was correct in concluding on summary judgment that Exclusion 3(d) of the title policy precludes PennyMac’s arguments for coverage.

“Since we have concluded that, as a matter of law, the title does not cover PennyMac’s loss, we also conclude that the district court did not err in granting summary judgment against PennyMac on its insurance bad faith claim,” the court continued. “Additionally, we conclude that the district court did not abuse its discretion in awarding attorney fees to Westcor as a discovery sanction.”

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