State Supreme Court orders banks be sanctioned for not following foreclosure mediation

By Cy Ryan

Thursday, Oct. 20, 2011 | 5:15 p.m.

While the constitutionality of the state's foreclosure mediation law is being challenged, the Nevada Supreme Court has ruled that penalties should be imposed on two lending companies that failed to follow those rules.

The court said Washoe District Judge Patrick Flanagan should determine the appropriate sanctions against Wells Fargo Bank and First American Loanstar-MERS for their conduct in two separate cases.

In 2009, the Legislature, responding to a wave of foreclosures, enacted a law setting up a system for lenders and homeowners to meet to see if some compromise might be worked out to avoid a foreclosure.

From September 2009 until June 30, 2011 there were 12,556 mediation meetings.

But in another case before the Supreme Court, Wells Fargo is challenging the validity of the foreclosure mediation law, saying it is taking real property without just compensation.

In the two cases decided Wednesday, the court ruled that in both instances the lending companies failed to bring to the mediation sessions certified copies of the mortgage note and appraisals of the property as required by law.

The court overturned both decisions of Flanagan, who issued foreclosure certificates after the unsuccessful mediations.

Patrick and Orlene Malloy had sued Wells Fargo after the foreclosure certificate was issued. Angela Heredia=Bonnet filed a legal action against First American and MERS.

In the pending case before the Supreme Court, Flanagan ruled in favor of Duke and Tina Renslow in their suit against Wells Fargo.

The Renslows purchased a home in Washoe County and took out a loan with Wells Fargo for $184,000 with monthly payments at $1,708. When the economic downturn came, the Renslows were unable to meet the payment.

They were enrolled in a trial program cutting the payments to $1,127 a month. But Federal Loan Home Bank had purchased the loan and refused to extend it. Mediation ensued and the mediator recommended against foreclosure.

The Renslows sued and Flanagan ruled in their favor. The judge ruled the monthly payments be lowered to $1,145 and the interest rate be reduced to 2 percent or 1 1/4 points below the prime rate for the life of the note. He also ordered Wells Fargo to pay $30,000 which, 26 months of mortgage payments, as a sanction.

Wells Fargo has appealed to the Supreme Court. In its opening brief, the bank says the ruling by Flanagan "is a taking of real property and other private property for a public use without any compensation, much less just compensation, which violates the Taking Clauses of the U.S. and Nevada Constitutions."

The Renslows have not yet filed their opening brief.

The court has not set the date for oral arguments for the case.