Schleining v. Cap One, Inc., 130 Nev. Adv. Op. 36 (May 29, 2014), arises out of a loan to purchase an undeveloped piece of property, which was guaranteed by the principal of the borrower. After the borrower defaulted, the lender commenced foreclosure proceedings and sent the notice of default to the borrower, but not the guarantor. The guarantor, as principal of borrower, testified at trial that he knew of the foreclosure sale prior to its commencement. The District Court held that the guarantor could not waive his right to notice of the foreclosure proceedings under NRS 40.453, a provision in Nevada’s anti-deficiency statutes that generally prohibits borrowers and guarantors from “waiv[ing] any right secured to th[at] person by the laws of this state.” The District Court further held that the lender had substantially complied with the notice requirements of NRS 107.095 because the guarantor had actual notice of the default and foreclosure proceedings and was not prejudiced by the lack of formal notice. The District Court awarded the lender a deficiency judgment against the guarantor.
On appeal, the Nevada Supreme Court was faced with two questions: (1) Can a guarantor waive its right to notice of foreclosure proceedings under NRS 40.453; and (2) Does NRS 107.095, requiring mailing of a notice of default, require strict compliance or is substantial compliance sufficient?
The Court answered the first question in the negative. NRS 40.453 explicitly provides that it is against public policy for any document related to a sale of real property to require a guarantor to waive any rights secured by the laws of Nevada.[1] The Court recognized that it had previously determined that the scope of NRS 40.453 was ambiguous and had limited its application to the rights created under Nevada’s anti-deficiency laws, NRS 40.451 through 40.459.[2] Nevada’s foreclosure statutes, however, are contained in a different chapter of the Nevada Revised Statutes than the anti-deficiency laws. The Court reviewed the legislative history related to NRS 107.095, the provision generally requiring that guarantors be given notice of foreclosure proceedings, and noted that provision applied to the same subject matter and was contained in the same bill as NRS 40.453. Accordingly, the Court held that the Nevada Legislature intended that the anti-waiver provisions also apply to the guarantor notice provision contained in NRS 107.095 and, therefore, the guarantor’s waiver here was invalid.
Given the invalidation of the waiver, the Court then considered whether NRS 107.095 requires strict or substantial compliance with the notice requirement. Relying on the Legislature’s explicit statement in NRS 107.080(5) that only substantial compliance is required to uphold a trustee’s sale and the Court’s prior determination that only substantial compliance is required in the mechanic’s lien context, the Court held that NRS 107.095’s notice requirement only required substantial compliance. The notice required under NRS 107.095 will be found to have occurred where there is actual notice and no prejudice to the party entitled to notice. The Court concluded that the District Court did not err in finding that the guarantor here had actual notice of the default and foreclosure and was not prejudiced by not receiving the statutorily required notice.
The dissenting Justices would have held that there was no substantial compliance with the guarantor notice requirements because the lender did not even attempt to give any notice of the foreclosure proceedings to the guarantor. Lenders should take heed of the point made by the dissenting Justices.
The lessons of Schleining are twofold: (1) no reliance should be placed on a guarantor’s waiver of notice in Nevada; and (2) lenders should make sure that all required foreclosure notices are given to all borrowers, all guarantors and any other party required by statute[3] to ensure a lender’s ability to exercise all of its rights and remedies.
[3] See e.g., NRS 107.090.
