Sunday, July 17, 2011

FYI: NV Sup Ct Requires Strict Compliance w/ Foreclosure Mediation Rules, Describes Factors for Sanctions

The Supreme Court of the State of Nevada recently held that a lower court
abused its discretion in allowing a foreclosure to continue despite the
beneficiary's alleged failure to comply with Nevada's statutory
foreclosure mediation rules. The Court also described factors for trial
courts to analyze when assessing sanctions for non-compliance with the
mediation rules.

A copy of the opinion is available at:

HSBC Bank USA, as Trustee for Luminent Mortgage Trust ("HSBC") instituted
foreclosure proceedings against the appellants-borrowers ("borrowers").
The borrowers elected to mediate, pursuant to Nevada's Foreclosure
Mediation Program. Two separate mediations occurred, without resolution.
During the mediation, HSBC's counsel indicated that they could not approve
a loan modification without investor approval.

The mediator filed a statement alleging that HSBC supposedly did not
participate in good faith, and supposedly did not bring complete copies of
all the required documents to the mediation, among other things.
Borrowers filed a petition for judicial review in district court, which
did not impose sanctions and authorized the foreclosure to continue.
Borrowers appealed.

As you may recall, Nevada's Foreclosure Mediation Program requires that
owners of owner-occupied residences be provided with an election of
mediation form along with the notice of default and election to sell.
Should a borrower elect mediation, the beneficiary of the deed of trust is
required to: (1) attend the mediation; (2) mediate in good faith; (3)
provide various required documents (including original or certified copies
of the deed of trust, note, and any assignments); and (4) provide access
at all times during the mediation to a person with authorization to modify
the loan. See NRS 107.086 and Nevada's Foreclosure Mediation Rules

In the event of a violation of those rules, the homeowner may petition the
district court for sanctions. The district court "may issue an order
imposing such sanctions . . . as the court determines appropriate." See
FMR 5(7)(f).

The Court found that the mediator's statement "clearly and unambiguously
set out [HSBC's] failure" to comply with the statutory requirements
regarding mediation. Specifically, the mediator claimed that HSBC
allegedly failed to bring complete copies of all of the required documents
to the mediation, and allegedly did not have someone present at the
mediation with the authority to modify the loan.

Further, the Court interpreted NRS 107.086 to "mean that commission of any
one of these four statutory violations prohibits the program administer
from certifying the foreclosure process to proceed and may also be

Therefore, the Court held that the lower court abused its discretion in
authorizing the foreclosure process to proceed, and remanded the case back
to the lower court with instructions to determine appropriate sanctions.

The Court concluded by laying out several factors to guide the lower
courts in determining sanctions: "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

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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