Pasillas and Leyva; Two Foreclosure Mediation Cases on Appeal in Nevada
Two of the four cases that were heard En Banc by the Nevada Supreme Court in February 2011 have had advance opinions released. Leyva (Moses) v. National Default Servicing Corp., 127 Nev., Adv. Op., 40 (2011) and Pasillas (Emiliano) v. HSBC Bank USA, 127 Nev., Adv. Op., 39 (2011). The specifics and arguments set forth by the appellants and respondents in those cases were covered in detail by an earlier blog post, which can be found here. In Leyva the Issues on appeal were: (1) Good faith versus bad faith, what constitutes bad faith in the foreclosure mediation context; (2) Whether the Lender must provide the documents as outlined in N.R.S. 107.086(4); (3), Is statutory non-compliance bad faith, and; (4) What standard of review should be applied to statutory non-compliance and bad faith? In Pasillas the issues were: (1) What constitutes good faith or bad faith participation in the Foreclosure Mediation Program; (2) Did the district court err in finding no bad-faith participation when the respondents failed to bring the required documentation to the mediation, and; (3) Did the district court err in not addressing the lack of authority to modify the loan and who respondents’ counsel represented before denying the petition for judicial review? Upon review the Justices reversed and remanded both decisions. Leyva was sent back to Judge Mosley in the Eighth Judicial District Court in Clark County and Pasillas was remanded to Judge Flanagan in the Second Judicial District Court in Washoe County. Leyva (Moses) v. National Default Servicing Corp. In Levya the Court held that pursuant to N.R.S. 107.086 and Foreclosure Mediation Rules (FMRs) even if the Homeowner is not the named mortgagor (his name did not appear on the mortgage note as obligor nor grantor on the deed of trust) they have standing to request mediation upon receipt of a notice of default as the “title holder of record". Further, they held that pursuant to the FMRs and N.R.S. 107.086 strict compliance is required under N.R.S. § 107.086(4) and (5) in regards to document production. Substantial compliance is not enough. A party is only in full compliance when they have produced all of the statutorily required documents. If a Party has not fully complied with the document production requirements, that is a sanctionable offense, and the district court is not permitted to allow the foreclosure to proceed. On the “title holder of record issue", Mosies Leyva agreed to take over monthly mortgage payments and received a quitclaim deed from Curtis Ramos, which was recorded. Ramos remained on the mortgage note and had signed the election of mediation form with Leyva, was represented by counsel at the hearing, and was available by telephone at the hearing. All factors satisfied the “title holder of record" requirement. On the “title of record" issue Wells Fargo produced a certified copy of the note (and certifying affidavit) that was originally recorded in favor of MortgageIT. The note was endorsed in blank. The certifying affidavit set out possession of any assignments thereto. No assignments were provided at the mediation or to the Court. Wells Fargo argued directly that they, as holder or bearer of the endorsed in blank note, didn't need an assignment, and were in compliance with the FMP document production rules because possession of the endorsed in blank note gave them full rights to enforce. The Court pointed out that under a UCC § 3-203 comment, codified as N.R.S. § 104.3203(2), mere possession of the note endorsed in blank is not enough. With an endorsed in blank note, under § 104.3203(2) they must be able to prove (by other evidence sufficient to establish that it was more likely than not transferred) that they were given possession for the purpose of enforcing it, “proof of transfer". The Court held that "proof of negotiation" is satisfied and operates as a “proof of transfer" when an endorsement is executed in favor of the enforcing party, i.e., it was endorsed directly to Wells Fargo, instead of blank. What the Court was looking for in Levya was evidence sufficient to show the "proof of transfer" because the endorsement was blank. In Levya they were looking for any evidence, but specifically an assignment, which the certifying affidavit claimed to cover, but which was never produced. Without this "proof of transfer" Wells Fargo had no authority to mediate the note. Proof of negotiation = endorsement directly in the name of the party enforcing the note at the mediation. Proof of transfer = when the note is endorsed in blank requires additional evidence to prove that the note was transferred (i.e., an assignment) to the bearer, mere possession is not enough for enforcement power on the note. On the issue of bad faith the Court held that due to the reversal and remand on the substantial compliance issue they explicitly did not reach the bad faith issue claim made by Appellant on Wells Fargo’s refusal to offer anything except cash-for-keys during the mediation. The decision was silent on the issue of sanctions and the Court remanded for a determination of sanctions by the District Court. Pasillas (Emiliano) v. HSBC Bank USA In Pasillas the Court set out that a party’s failure to produce documents required under N.R.S. § 107.086 and the FMRs prohibits the District Court from directing the Foreclosure Mediation Program Administrator from certifying the Mediation, preventing the Beneficiary from proceeding with the foreclosure and noticing the foreclosure sale. At two mediations, respondents failed to bring a full copy of the note (pages were missing) and assignment, and only provided a broker’s price opinion rather than an appraisal and estimated short sale value. Additionally, the attorneys for respondents claimed that they would need additional investor approval before they could authorize a loan modification. The Assignment purportedly assigning the mortgage note and deed of trust (recorded in favor of American Broker’s Conduit) to HSBC was incomplete because it was signed by American Brokers Conduit, but did not provide an assignee. In a footnote the Court clarified the issue of the Assignment containing a blank assignee and set out, “We determine that an assignment provided without the name of the assignee is defective for the purposes of the Foreclosure Mediation Program because it does not identify the relevant parties". fn. 9. Further, “[w]e agree with the rationale that valid assignments are needed when a beneficiary of a deed of trust seeks to foreclose on a property". id. The Court held that N.R.S. § 107.086(4) and (5) and FMR 5(7)(a) clearly and unambiguously mandate that the beneficiary of the deed of trust or its representative (1) attend the mediation, (2) mediate in good faith, (3) provide the required documents, and (4) have a person present with authority to modify the loan or access to such a person. The District Court ignored the facts and the Mediator’s statement outlining the failures under N.R.S. § 107.086(4) and (5) and FMR 5(7)(a) and instead ordered the FMP Administrator to issue the Certificate. The Court held that this was an abuse of discretion because the Respondent’s clearly violated N.R.S. § 107.086 and the FMRs. And the failure to satisfy statutory mandates is an error of law, which was an abuse of discretion by the District Court. The Court provided minimal guidance to the lower court when considering sanctions in any Foreclosure Mediation case. They set forth some relevant factors to consider such as, whether the violations were intentional, the amount of prejudice to the non-violating party, and the violating party’s willingness to mitigate any harm by continuing meaningful negotiation. With this minimal guidance the Court reversed and remanded with instructions to determine sanctions for Respondent’s statutory and rules-based violations.