Holt vs. Regional Trustee Services Corp.

127 Nev Adv. Op. 80 (Dec 15, 2011)

This recently decided case may be the death knell of the Nevada Foreclosure Mediation Program. The Supreme Court decided that a lender which has been found to have participated foreclosure mediation proceedings in bad faith, may initiate a new foreclosure action by filing a new notice of default. Essentially the lender gets as many “do-overs” as it wants until it finally succeeds in retaking possession of the borrower’s home. One must ask, given this finding, why any lender would modify loans when attending a foreclosure mediation? It may be more cost effective for the lender to participate in bad faith, refuse to modify loans, and repeatedly go through the process until the lender finds a friendly mediator who refuses to make a finding of bad faith. Then the lender can proceed to foreclose.

The Holts elected to participate in the new Nevada Foreclosure Mediation Program. The lender, One West Bank failed to appear. A petition for judicial review was filed with the district court in Clark County. The district court judge awarded attorney’s fees and ordered the parties to attend a second mediation, solely at the lenders expense. The lender, One West Bank, again failed to appear for the noticed mediation. A second appearance before the district court judge resulted in a final order holding that the lender had acted in “bad faith” and that no “Certificate of Completion” of mediation would issue. Without the Certificate of Completion to file with the County Recorder, the lender could not hold a foreclosure sale. This stopped the lender from proceeding with the existing foreclosure.

Several months later, the lender filed a new Notice of Default and attempted to start a new foreclosure action, subjecting the homeowner to elect to participate in another (third) mediation. A complaint was filed to declare this practice of litigating the same matter multiple time to be unlawful. The matter ended up before the Nevada Supreme Court.

The question decided was whether or not a lender has the legal right to repeated “do overs” if the lender does not follow applicable Nevada foreclosure law the first time and the lender does not like the result. How many times does a party get to litigate the same matter? As the practice of filing a new notice of default after a judicial finding of bad faith has become wide spread in Nevada, this case has implications for many thousands of homeowners.

Given this decision, why should a homeowner elect to participate in the foreclosure mediation program? Because until the lender obtains a certificate of completion from the Foreclosure Mediation Program, the lender cannot proceed to foreclose. If the lender has to go through the process several times, the homeowner gets to continue occupying the house for free during this lengthy process, sometimes for years. Our experience is that lenders almost never reduce the principal owing on a mortgage as part of the foreclosure mediation process, no matter how underwater the house is. Lenders will sometimes modify the terms of the loan, such as interest rate, but how helpful is this if the house is 50% underwater. 5 or 10 years from now, the homeowner may still owe more than the house is worth – and during that period of time the homeowner could often have rented the same home on the same street for less money.