Trustees Who Exercise Power Of Sale In Non-Judicial Foreclosures Need Not Be Licensed Debt Collectors - The Writ
In its latest decision arising from Nevada’s foreclosure crisis, the Nevada Supreme Court reconciled two conflicting chapters of the Nevada Revised Statutes as they relate to non-judicial foreclosure sales of real property. Benko v. Quality Loan Serv. Corp., 135 Nev. Adv. Op. 64 (December 26, 2019). NRS Chapter 107 sets forth the requirements by which a trustee named in a deed of trust may exercise the power of sale when a loan is in default. NRS Chapter 649 regulates those who are engaged in debt collection activities. In Benko, the Court held that, even though Chapter 107 trustees engage in activities that meet the definition of a debt collection agency, basic principles of statutory construction exclude them from the Chapter 649’s licensing requirements. Because the allegations in the operative complaint occurred between 2008 and 2011, the Court interpreted the version of Chapter 107 that existed at that time.
The Statutes at Issue in Benko
NRS Chapter 107 addresses deeds of trust, by which a trustee holds legal title to a borrower’s property as security for the borrower’s loan obligations to a lender. When a borrower defaults, a trustee may pursue nonjudicial foreclosure only according to the specific procedures set forth in that chapter. NRS Chapter 107 also delineates the consequences if a trustee fails to comply with the statutory requirements.
NRS Chapter 649 addresses the regulation of collection agencies by the Commissioner of Financial Institutions, including licensure. The statute defines “debt collection agency” as “all persons engaging, directly or indirectly, and as a primary or a secondary object, business or pursuit, in the collection of or in soliciting or obtaining in any manner the payment of a claim owed or due or asserted to be owed or due to another.” NRS 649.020(1).
The Benko Case
Benko and 18 other individuals (the “Homeowners”) brought a putative class action against current or former Chapter 107 trustees (“the Trustees”), alleging they engaged in unlicensed debt collection agency activities by pursuing nonjudicial foreclosures on the Homeowners’ homes. The Homeowners asserted claims of statutory consumer fraud under NRS 41.600, based on violations of NRS 649.075 and NRS 649.171, and unjust enrichment. The statutory fraud claim was premised on the contention that the Trustees acted as collection agencies when they pursued payment of claims purportedly owed or due to lenders yet did not hold the requisite license to act as a collection agency.
The Trustees moved to dismiss the Homeowners’ claims, maintaining that they need not be licensed as collection agencies when acting in their capacities as Chapter 107 trustees. The district court granted the motion and dismissed the Homeowners’ claims pursuant to NRCP 12(b)(5). The Homeowners appealed.
The Supreme Court’s Analysis
Pointing to the recent U.S. Supreme Court decision of Obduskey v. McCarthy & Holthus LLP, 139 S. Ct. 1029, 1036-38 (2019), the Nevada Supreme Court agreed with the Homeowners that nonjudicial foreclosure of a deed of trust constitutes debt collection under NRS Chapter 649. In Obduskey, the U.S. Supreme Court concluded that a law firm hired by a creditor to engage in nonjudicial foreclosure would satisfy the primary definition of a debt collector under the federal Fair Debt Collection Practices Act. In light of this holding, the Nevada Supreme Court deemed the Trustees’ actions to similarly come within the ambit of NRS Chapter 649.
Nevertheless, the Court concluded that the Trustees need not satisfy Chapter 649’s licensure requirements. To reach that result, the Court deemed the two chapters in conflict and applied three principles of statutory construction to reconcile the conflicting provisions.
First, the Court noted that “a specific statute controls over a general statute.” The Court deemed Chapter 107 to be a specific and comprehensive statutory scheme that dictated how a trustee must exercise the power of sale and the consequences for failing to do so. In contrast, the Court viewed Chapter 649 as conferring general powers to the Commissioner of the Division of Financial Institutions to regulate collection agencies. As a result, the specific provisions of Chapter 107 trump the general provisions of Chapter 649.
Second, the Court observed that conflicting statutory provisions should be read in harmony as long as the interpretation does not violate statutory intent. The Court pointed out that the noticing, pre-sale counseling and other requirements that bind a trustee before it may exercise the power of sale are at odds with NRS 649.375, which prohibits advertising the sale of a claim, publishing a list of debtors or offering counseling in conjunction with debt collection. This principle likewise led the Court to conclude that the intent of both statutes can be effectuated if trustees are not subject to licensure under Chapter 649.
Third, the Court relied on “the fundamental rule of statutory construction that the mention of one thing implies the exclusion of another.” In that the only reference to nonjudicial foreclosure in Chapter 649 concerns a "community manager” foreclosing on an assessment lien in a common interest community or condominium hotel (NRS 649.020(3)), the Court inferred that the Legislature’s exclusion of trustees from Chapter 649’s licensure requirements was intentional.
Implications
In 2011, the Legislature enacted NRS 107.028, which identifies certain categories of persons and entities who may serve as a deed of trust trustee. This list includes, but is not limited to, “[a] person who engages in the business of a collection agency pursuant to chapter 649 of NRS.” Although Benko relates only to allegations that predate this 2011 amendment, because numerous foreclosures occurred before that time, its holding nevertheless plays an important role in the Court’s foreclosure jurisprudence.