Forcing Lenders to the Negotiating Table in Nevada

Forcing Lenders to the Negotiating Table:

How A New Nevada Law Can Help Prevent Foreclosures

 

Introduction

For millions of American families, the word “foreclosure” is more than just a media headline, it is a very real prospect with dire consequences.   Homeowners looking for answers from the “experts” have found frighteningly few and although the Obama administration rolled out a $75 billion program to help stem the tide of foreclosures by incentivizing mortgage lenders to modify loans to make them more affordable, as of now, most troubled homeowners put loan modifications in the same category with unicorns, Santa Claus, and the Tooth Fairy; nonexistent. 

 

All too common these days

 

 

To bolster federal efforts, over several states have begun to tackle the housing crisis by passing legislation to help restore the American dream that for many has turned into a very un-American nightmare.  In Nevada, help to homeowners came from the state legislature in the form of Assembly Bill 149, signed into law by Governor Jim Gibbons on May 29^th.  In short, AB 149, which covers only owner-occupied homes served with a Notice of Default after July 1, 2009, forces mortgage lenders to offer mediation with homeowners to discuss a modification of the delinquent loan as a prerequisite to pursuing foreclosure.  Overall, the new law is a plus for homeowners trying to navigate the labyrinthine route to loan modification, but is laden with several procedural pitfalls and landmines that may trip up some borrowers.

Under the current “system”, which is ad hoc at best, finding a person at a bank with the authority to negotiate a loan modification is not always an easy proposition, even in institutions that have dedicated Loan Modification Departments.  Even if a borrower can burrow through their mounds of loan documentation to find appropriate contact information, they then begin the oft times frustrating gauntlet of bank personnel and transferred phone calls all to ask one question: How can I save my house?

 

City of Foreclosure: Population 2,200,000

 

 

 

Devil In the Details

If the housing market in Nevada (and elsewhere) is like a plane crash, AB 149 helps illuminate the path to the emergency exit rows by establishing certain ground rules for reaching a non-foreclosure solution.  AB 149 amends Section 107 (Deeds of Trust) of the Nevada Revised Statutes to place several restrictions on mortgage lenders before they can foreclose on a home with the end goal of staving off another wave of foreclosures in the Silver State.

At the heart of AB-149 is the oft-elusive loan modification.  The bill requires two very important requirements of lenders before they can foreclose on a home loan including:

-                Providing homeowners the contact information of a person with authority to negotiate a loan modification on behalf of the lending institution

 

-                Provide an offer of in person mediation to discuss a loan modification.  Lenders must also provide form upon which the borrower may choose to accept or refuse the offer of mediation

AB 149 requires this information to be sent along with the Notice of Default and Election to Sell.  Under the current framework, the Notice of Default and Election to Sell is seen as the formal beginnings of the foreclosure process.  This document is typically sent after a homeowner is 90 days behind on their home mortgage and informs them that they have 35 days to get current with the mortgage or face forclosure.  Under the new law, the borrower has 30 days to file the form accepting mediation.  Once accepted, no action can be taken towards foreclosing on the home until mediation has occurred. 

Rules governing the mediation process are expected to be finalized by June 29, however, the proposed rules that have been released require mediations to be scheduled no later than 80 days after the Notice of Default is sent and require lenders to send a representative to the mediation that has the power to negotiate a loan modification.  Lenders are also required to bring a copy of the home mortgage.  If a lender does not send an authorized individual or fails to bring the appropriate documentation, the proposed rules give judges the authority to modify the home loan. 

While the bill provides added clarity to the process and responsibility on the part of lenders, it also confers certain responsibilities on homeowners seeking loan modifications.  If a homeowner refuses mediation, fails to respond to the offer of mediation or does not attend mediation, the lender is discharged from its responsibility to mediate with the homeowner and the homeowner will probably face a significant hurdle in seeking further remedy to stave off foreclosure. 

 

Barbara Buckley: She wrote the bill. Thank/blame her.

 

 

Clarity does come at a price, however.  The $400 cost of mediation will be split between the borrower and lender, and more likely than not, borrowers will need professional representation before, during and after the mediation to organize the various documents and advocate for the homeowner during the process.  The rules, as written, will probably not read very clearly to untrained eyes, although in addition to professional services and attorneys to help guide borrowers, there are government approved housing counseling agencies that can also help homeowners in need.

Other Benefits

            An ancillary benefit of the passage of the new law is that it should serve to push many of the fraudulent people and practices out of the loan modification business in Nevada.  High anxiety, lack of clear rules and an endless supply of foreclosures is a petri dish for fraud.  The new Nevada foreclosure law helps to inoculate homeowners from would be fraudsters by inserting a quasi-judicial process and places homeowners directly in front of mortgage lenders, thereby reducing the ability of false promises and fraudulent schemes to dominate the pre-foreclosure housing market. 

            Borrowers should view the passage of AB 149 as a helping hand, but not as a panacea.  Although lenders will be forced to the negotiating table, they are not forced to make deals and modify loans, although more loan modifications are likely to result with a more detailed and sophisticated structure that the bill provides.  One question that has been asked is whether or not the mediator will have any decision-making role in the mediation.  The role of the mediator will not be to choose sides or make rulings, but rather to ensure that both parties make a “good faith effort” to resolve the mortgage loan issues. 

            The largest pitfall for homeowners is the procedure of the mediation process.  There are various timelines and deadlines that could trip up a borrower and extinguish their right to mediation.  These procedures will need to be followed meticulously by any homeowner looking to guide the process on their own, but most would be best served by enlisting the help of a professional or non-profit organization well versed in the new law.