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Thursday, September 1, 2011

Nevada Supreme Court Interprets Statute Implementing Foreclosure Mediation Program

By Professor Jean Sternlight

In Pasillas v. HSBC Bank USA, 255 P.3d 1281 (Nev. 2011), and Leyva v. National Default Serving Corp., 255 P.3d 1275 (Nev. 2011), the Nevada Supreme Court made several important interpretations of the statute implementing Nevada's Foreclosure Mediation Program, NRS 107.086 (“NFMP”). Adopted in 2009 in an attempt to deal with the large number of foreclosures in Nevada, the NFMP requires that in order to foreclose on an owner-occupied residence a trustee must provide an election-of-mediation form to the owner together with a notice of default and election to sell. NRS 107.086(2)(a)(3). If the owner elects mediation the deed of trust beneficiary must attend the mediation, mediate in good faith, provide certain documents, and, if attending through a representative, send one with authority to modify the loan.

While other jurisdictions throughout the country are also using mediation to deal with foreclosures, the Nevada program is unique in its reliance on sanctions and the good faith requirement. As the precise requirements of the statute have been disputed, users of the program have long been awaiting guidance from the Nevada Supreme Court regarding interpretation of these provisions.

In essence, Pasillas and Leyva both stand for the proposition that the statute means what it says. Pasillas involved a mediation in which the trustees did not provide all the required documents and also did not send a representative with authority to modify the loan. The Court held that the district court abused its discretion in allowing respondents to continue with the foreclosure process, in that once statutory infractions have been committed the trustee is proscribed from proceeding with foreclosure and may also be subject to sanctions. In Leyva, similarly, the Nevada Supreme Court found that "strict compliance" with the statute is compelled, and that the district court is prohibited from authorizing foreclosure where the trustee produced those documents deemed "essential," but not all documents required by the statute. Specifically, the lender must produce those documents showing the original note was properly endorsed or validly transferred. As for sanctions, the Court held they are not mandatory, but that issuance should depend on "whether the violations were intentional, the amount of prejudice to the nonviolating party, and the violating party’s willingness to mitigate any harm by continuing meaningful negotiation."