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Wednesday, Dec. 14, 2011 | 2 a.m.
Foreclosure Mediation Under Fire
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The state's Foreclosure Mediation Program is under fire from different angles. A Reno judge is deciding one lender's claims that it violates the separation of powers. While Wells Fargo is challenging that same Reno judge's right to modify a borrower's mortgage. Plus, we hear from the woman behind the mediation program, former Assembly Speaker Barbara Buckley.
In today's Sun
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The Nevada Supreme Court is in the unusual and uncomfortable position of deciding whether a state program that it operates is constitutional.
The court has since 2009 operated a state mediation program, providing a forum in which homeowners and lenders see if they can negotiate a deal to avoid foreclosure. The Legislature created the program after the housing bubble burst and the state became the nation’s foreclosure capital. It has so far served more than 12,000 Nevada homeowners.
Now, the program is under attack by Wells Fargo Bank, which was hit with a $30,000 sanction for failing to negotiate in good faith during a mediation session with a Reno couple.
Duke and Tina Renslow borrowed $184,000 in 2003 to buy a home with monthly mortgage payments of $1,708. When they fell behind in their payments, a notice of default was filed. The couple sought mediation to get their payments reduced.
During mediation, Wells Fargo offered to reduce their payment by $260. The bank says the offer was refused.
When no agreement could be reached, the Renslows filed suit.
District Judge Patrick Flanagan found that Wells Fargo failed to negotiate in good faith because its representative at the mediation session did not have authority to modify the loan.
Flanagan then ordered the monthly housing payment reduced to $1,145; lowered the interest rate on the loan to 2 percent, 1.25 percent below the prime rate in 2009 and imposed $30,000 in sanctions against Wells Fargo to be paid to the Renslows.
The judge also ruled the bank should not attempt to collect late fees and penalties.
The bank has appealed the case to the Nevada Supreme Court. And in its opening brief, the bank says placing the program under the court violates the constitutional doctrine of separation of powers. (Wells Fargo has been joined in its legal battle by United Trustees Administration, an organization composed of foreclosure trustees.)
The bank’s attorneys also argue that Flanagan’s decision in District Court violates the constitutional protection against the taking of real property and other private property for public use without compensation. The law is invalid, the lawyers say, because it gives the courts “sweeping authority” to modify loans and “substantially impairs a contractual obligation.”
Attorneys for the Renslows maintain a 1967 Supreme Court decision allows the court to rule on such issues. Attorney Carole Pope says the Supreme Court is the proper venue for the mediation program because of justifiable controversy inherent in the foreclosure process.
Pope also says there is no “taking” of property by the Renslows. Wells Fargo will receive all the money it loaned the couple, it will merely be paid over a longer term, thus losing part of the interest charged on the initial contract.
“The only reason for modifying the note is Wells Fargo’s bad faith participation in the Foreclosure Mediation Program,” Pope said. “This case illustrates the need for imposing penalties to assure that lenders participate in the program to help Nevada’s citizens.”
The mediation program has been a point of controversy since its inception in 2009.
Homeowners and their advocates have accused banks of not wanting to reach an agreement. Figures supplied by the Supreme Court say 50 percent of homeowners participating in it have reached agreements with their banks.
But Assembly Majority Leader Marcus Conklin, D-Las Vegas, wondered last month whether the Supreme Court can be unbiased as it decides this case because it collects fees to administer it.
No hearing date has been set for the case.
First, let's get all the non-sequitors out of the way: the defaulting homeowners are innocent, hard-working Nevadans who simply want to stay in their homes; the banks are greedy, taxpayer-bailed-out corporations who put profits before people. Oh, and the Koch brothers must be involved somewhere, somehow.
Even if all of the above is true, and even if the makers of this law had (and Nevada courts have) nothing but the noblest of intentions, the fact remains that under any halfway honest reading of the law, the foreclosure mediation program in Nevada is unconstitutional for a number of reasons.
Unconstitutional taking? Perhaps. But still an impairment with an obligation of a contract, in violation of the U.S. and Nevada Constitutions. This law is far more troubling than the foreclosure law narrowly upheld in 1934 by a 5-4 vote in Blaisdell.
That said, the real problem with this law is that it is disassembles the constitutional wall separating the three branches of government. The Nevada Supreme Court has helped in the drafting of the statutory provisions. It has also held, as if it were an administrative agency, essentially notice and comment hearings as it drafted and revised the rules. It is also asked the courts to be the law's enforcers. Now the courts get to interpret the law and rule on its constitutionality.
In other words, the courts get to be the legislative, the executive, and the judicial branches of government all at the same time. Good intentions or not; good results or not; if this is not an impermissible fusion of the supposedly separate branches of government, it is hard to see what is.
Prior to 2003 a judge had the absolute right to void a contract he deemed egregious and unconscionable and Wells knows this, the bankruptcy laws were changed to prevent a judge from 'cramming' a loan or 'modifying' the interest or principle. This proves conspiracy on the part of the banking industry to change the law to force people to pay their predatory loans.