Nevada Supreme Court justices were intimately familiar with the subject matter Monday when the first appeal was heard regarding the foreclosure mediation program in Carson City.
Lawmakers in 2009 enacted statutes designed to combat the state’s housing crisis and give tens of thousands of embattled homeowners a fighting chance to stay in their homes. They put teeth into the law by allowing for sanctions against lenders who don’t meaningfully participate in the process.
The Supreme Court took on the task of designing and implementing the program and has tweaked the rules since its inception in July 2009. The law requires lenders and borrowers to bring all relevant documents to the mediation and to send someone from the bank with authority to modify loans.
Scores of mediators — mostly attorneys — were trained, and district Judges Donald Mosley in Clark County and Patrick Flanagan in Washoe County were appointed to review all failed mediations in their respective jurisdictions.
Mosley was at the center of Monday’s oral arguments, which focused on three issues: What is the appropriate definition for good faith and bad faith as they relate to the mediation program; what is the proper standard of review for District Court judges to use in determining bad faith; and whether a lender commits bad faith when it doesn’t bring the required loan documents when the owner of record did not assume the loan.
David Crosby, the lawyer for homeowner Moses Leyva, urged justices to reverse Mosley’s ruling in favor of the lender and refusal to find that Wells Fargo acted in bad faith in a failed mediation with Leyva because the bank didn’t bring required loan documents.
Gregory Brower, Wells Fargo’s attorney, said the lender’s technical error wasn’t bad faith, a finding he said should be reserved for lenders who engage in actual fraud or other serious misdeeds.
In a twist, both attorneys said the other side had no standing to participate in mediation because neither side could prove it was the actual lender or borrower.
Brower said Leyva bought the home from its previous owner, Carlos Ramos, and paid the mortgage but was never assigned the loan by Wells Fargo.
Crosby argued Wells Fargo had no role to play because it couldn’t prove it was the lender. Instead, he said, the only documents he could find identified the lender as "Mortgage It."
The high court took note of the odd development but appeared to be more interested in the issue of good and bad faith. Justices peppered both attorneys with questions throughout the hearing.
From Crosby’s perspective, the law that requires lenders to bring certain loan documents is written in plain language, leaving no wiggle room for different interpretations.
"The court had no authority to ignore the statute," he said, emphasizing the law’s wording. "Documents shall be provided. … There’s no room for deviation."
The mediator, who was not identified, found fault with Wells Fargo for failing to provide documents, but he did not suggest the lender acted in bad faith in his report, which Brower called "telling."
"There has to be more than a failed mediation," said Brower, who told justices a finding of bad faith is serious and should not be based on technical errors.
Crosby said failure to follow the law defines bad faith. He said Wells Fargo offered no options to Leyva other than exit strategies to "get him out of the home as soon as possible."
The Supreme Court will deliberate and issue an order. The appeal could be the proverbial tip of the iceberg as lenders, borrowers and mediators continue to struggle.
Contact Doug McMurdo at firstname.lastname@example.org or 702-224-5512 or read more courts coverage at lvlegalnews.com.