The United States District Court for the District of Nevada recently granted a title insurance company’s motion for summary judgment regarding a homeowners’ association lien that purportedly extinguished the insured lender’s deed of trust. See Wells Fargo Bank, N.A. v. Commonwealth Land Title Ins. Co., 2019 WL 2062947 (D. Nev. May 9, 2019). In 2006, the homeowners executed a deed of trust on their home in exchange for a loan of about $300,000. The defendant title insurance company issued a title insurance policy to the lender, and the lender later assigned its interest in the loan to the plaintiff-insured. In 2009, the homeowners’ association (the “HOA”) for the property recorded a notice of default and election to sell based on the homeowners’ failure to pay HOA fees. In 2011, the HOA recorded a notice of trustee’s sale. The property was then sold to a third party, who claimed that its interest in the property was senior to the insured’s, and that the HOA sale extinguished the insured’s deed of trust on the property. The insured brought an action against the third party regarding whether the deed of trust was extinguished. The insured then filed a claim with the title insurance company, who denied the claim. The insured then brought this action, seeking indemnification for its legal fees in the action against the third-party purchaser of the loan, as well as claims of breach of fiduciary duty and the implied covenant of good faith and fair dealing. The insurer filed a motion to dismiss for lack of jurisdiction, and the parties also cross-moved for summary judgment.
The Court first denied the motion to dismiss, finding that diversity jurisdiction existed. Although the insured was seeking its attorneys’ fees for its state-court action, which were only $19,792.50 as of the time of the complaint, the Court found that the complaint sought the insured’s ongoing losses in the state-court action, which continued to accrue. The insurer “has therefore not shown that it is a legal certainty that [the insured] cannot reach the jurisdictional minimum [of over $75,000] to establish diversity jurisdiction.” Nonetheless, the Court granted the insurer’s motion for summary judgment. The policy at issue included an exception for losses that arise by reason of certain covenants, conditions and restrictions (the “CC&Rs”), and “the claim arose as a result of an HOA lien provided for in the CC&Rs.” The exception further stated that “[s]aid covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any . . . Deed of Trust.” The insured argued that this latter sentence was incorrect because the HOA lien arising from the CC&Rs ultimately did extinguish the insured’s lien, and one of the policy endorsements provides coverage for “[a]ny incorrectness in the assurance which the Company hereby gives: . . . [t]hat there are no covenants, conditions, or restrictions under which the lien of the mortgage referred to in Schedule A can be cut off, subordinated, or otherwise impaired.” The Court rejected the insured’s argument, finding that “[w]hile that statement in the CC&Rs may have been incorrect as a matter of law, the HOA’s lien extinguished the deed of trust as a function of Nevada law and not of the CC&Rs themselves. [The insurer] gave no assurance that the statement in the CC&Rs was correct, it merely gave notice of what the CC&Rs said.” Likewise, because the Court found that the insurer correctly denied coverage, it dismissed the remaining claims.