Training Camp: Preparing for Nevada Foreclosure Mediation
Jeffrey J. Todd, Esq.
Each year, when the heat of the summer begins to turn to autumn, a renewed sense of excitement and anticipation sweeps across the nation. From corporate offices in Los Angeles to coal mines in rural Pennsylvania, Americans share a common enthusiasm: football season is here! Teams are in training camp in preparation for their season on the gridiron. Fans across the country are reviewing scouting reports and lists of players in preparation for fantasy football drafts.
Meanwhile, lenders in Nevada are pouring over loan files in preparation for their own contests: foreclosure mediations. In July 2011, the Supreme Court of the State of Nevada issued three important decisions, changing the playbook on non-judicial foreclosures by requiring a heightened level of compliance from lenders during foreclosure mediations.
In Pasillas, et al. v. HSBC BANK USA, as Trustee, et al.,the Court stated that lenders must strictly comply with the Foreclosure Mediation Rules. Substantial compliance is not acceptable, even if there is no prejudicial effect on a borrower. Specifically, if there is a defect in any of the documentation (the Note, Deed of Trust, Assignments, Certifications thereof, or Broker’s Price Opinion), the lender will not get a foreclosure certificate.
In practice, non-judicial foreclosures will need to be re-started with a new Notice of Default for the most minimal non-compliance (i.e., a Deed of Trust with a missing page or a Certification with a photocopied signature.) The Pasillas decision takes all discretion away from the District Court on a post-mediation petition for judicial review. Even if a lender participates in mediation in good faith, makes reasonable offers, and the borrower chooses not to accept an agreement, the Court is prohibited from issuing a foreclosure certificate based upon any document defect noted in a mediator’s statement.
In Leyva v. National Default Servicing Corp., et al., the Court built on the requirements of Pasillas and clarified its position on authority in light of the UCC. The Court indicated that all endorsements on a Note signed to the order of the original lender must be provided at the mediation or the beneficiary must produce evidence of a transfer. Without the signed endorsements or evidence of transfer, the Note is non-compliant (and pursuant to Pasillas, the foreclosure certificate will not issue).
The Leyva decision has resulted in mediators and borrowers placing a great deal of scrutiny on the documentation. Without an endorsement of the Note, many mediators allege that the Note and Deed of Trust have been separated, and accordingly the lender at the mediation is appearing without proper authority. This issue is most prevalent in MERS cases, where MERS held the beneficial interest under the Deed of Trust as a nominee, but the Note was never endorsed to MERS. Any defect noted by a mediator may be challenged on judicial review, but restarting the foreclosure with a new Notice of Default is unfortunately the most common end result.
Lastly, in Redmon v. HomEq Servicing, Inc., the Supreme Court held that the District Court shall make factual inquiries on Judicial Review to determine if a lender has complied with the Foreclosure Mediation Rules. In Redmon, HomEq’s representative was unavailable by telephone during the mediation, and the Supreme Court remanded the matter to the District Court for a factual inquiry to determine whether HomEq appeared with proper authority to negotiate. If the District Court found that HomEq did not have proper authority, then sanctions would be mandatory under the Pasillas decision.
To date, the decisions of the Supreme Court act as a staunch defense against the lenders’ foreclosure efforts. But the season is long, and the lenders’ efforts are not going unnoticed. Several challenges to the Foreclosure Mediation Program are pending, including cases challenging the courts’ right to modify a loan and challenges to the constitutional administration of the program.
In the meantime, lender representatives will want to huddle up to ensure that preparation for mediation is air-tight. Making sure you have the proper pages in your playbook is the only way to succeed on mediation day. Good luck this season.
A recent decision in Washoe County, Nevada analyzes that strict compliance is mandated as to the statutory language of NRS 107.086. However, strict compliance may not be necessary as to the Foreclosure Mediation Rules, so long as the purported violation is not a violation of NRS 107.086. In such an instance, substantial compliance would be sufficient. This analysis has not been adopted by the Supreme Court of Nevada. (See, Hermsen v. Deutsche Bank National Trust Company, as Trustee, et al., Second Judicial District Court, Case No. CV11-01811, Order dated August 10, 2011.)