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Nevada’s Foreclosure Mediation Program (FMP); Einhorn v. BAC Home Loans

Posted by: on Thu, Dec 20, 2012

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Nevada’s Foreclosure Mediation Program/ Einhorn v. BAC Home Loans, Supreme Court Dec. 6, 2012






No. 57875 (128 Nev. Advance Opinion 61) Dec. 6, 2012.

The Einhorn decision originated in the new Nevada Foreclosure Mediation Program (FMP). When mediation did not produce a loan modification as sought by the borrower, Arthur Einhorn (Appellant) filed a petition for judicial review in the district court. The petition asked for sanctions against respondent BAC Home Loans Servicing, LP (BAC), alleging that BAC failed to comply with the FMP’s document production and good faith requirements. See NRS 107.086(4).

The trial court rejected Einhorn’s petition and found “no irregularity as to the submitted documents”; that BAC “has met [its] burden of showing a lack of bad faith”; and ordered that, “absent a timely appeal, a Letter of Certification will issue,” which would allow the lender’s foreclosure to proceed.

On appeal, the Nevada Supreme Court affirmed the trial court’s decision and explained that when a Nevada homeowner elects FMP mediation, as Einhorn did, a non-judicial foreclosure on an owner occupied residence cannot proceed without an FMP certificate that mediation has concluded or been waived. Holt v. Regional Trustee Services Corp., 127 Nev. _, _, 266 P.3d 602, 603 (2011).

The goal of the new Nevada foreclosure mediation statute is to bring the trust-deed beneficiary and the homeowner together to participate in a meaningful negotiation. Id. at_, 266 P.3d at 607. The statute obligates the trust-deed beneficiary (or its representative) to “(1) attend the mediation; (2) mediate in good faith; (3) provide the required documents; [and] (4) if attending through a representative, have a person present with authority to modify the loan or access to such a person.” Pasillas v. HSBC Bank USA, 127 Nev. _, _, 255 P.3d 1281, 1284 (2011) (citing NRS 107.086(4) and (5) and FMR 5(7)(a)).

This appeal centers on the document production requirement. This requirement originates in NRS 107.086(4), which states as follows: “The beneficiary of the deed of trust shall bring to the mediation the original or a certified copy of the deed of trust, the mortgage note and each assignment of the deed of trust or mortgage note.” Having these documents available at the mediation allows the mediator and the homeowner to satisfy themselves “that whoever is foreclosing actually owns the note and has authority to modify the loan.” Leyva v. National Default Servicing Corp., 127 Nev. _, _, 255 P.3d 1275, 1279 (2011). This also verifies that the foreclosing entity “is the proper entity, under the non-judicial foreclosure statutes, to proceed against the property.” Edelstein v. Bank of New York Mellon, 128 Nev. _, _, 286 P.3d 249, 255 (2012) (citing NRS 107.086(4).

Although he did not find bad faith, the mediator’s statement in Einhorn reported that BAC “failed to bring to the mediation each document required,” citing a gap in the assignments and an early lost note certification seemingly at odds with the trustee’s certified claim to currently possess the original.

The district court, however, did not agree. It found that BAC’s “Certification of Documents [establishes that] the original Deed of Trust, Promissory Note and the missing Assignment of Promissory Note and/or Deed of Trust [are in BAC’s] possession” and concluded that there is “no irregularity as to the submitted documents.” BAC’s “certification of documents” is signed by Sheila Wooten, who works for BAC’s trustee. In it, she attested that she has the originals and attaches true copies of the documents.

Einhorn objected to the notary’s failure to establish that Wooten was actually sworn under oath before she signed the certification. The court rejected this argument because

Wooten attested to the truth of her statements under penalty of perjury. See NRS 53.045 (signed declaration under penalty of perjury as to the existence or truth of a matter is the equivalent of an affidavit); Buckwalter

v. Dist. Ct., 126 Nev. _, _, 234 P.3d 920, 921-22 (2010).

Although BAC’s production lacked a key assignment, Einhorn filled in the gap. His lawyer obtained a copy of the Countrywide/MERS Deutsche Bank assignment from the county recorder and brought it, first, to the mediation and, later, to the hearing in district court. In it, MERS “grants, assigns and transfer[s] to Deutsche Bank National Trust Company as Trustee for the HSI Asset Loan Obligation Trust 2007 -AR1 all beneficial interest under [the Einhorn deed of trust] together with the note or notes therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said deed of trust/mortgage.” The assignment is signed by an “assistant secretary” of MERS, Angela Nava. Her signature was acknowledged and notarized.

The Court held that signing the record “in the presence of the notarial officer is not necessary as long as the individual declares, while in the presence of the officer at that time the acknowledgment is made, that the signature already on the record is, in fact, the signature of the individual.”

NRS 104.3309 provides for the enforcement of lost, destroyed, or stolen instruments, the rights to which may be assigned. See In re Caddo Parish-Villas South, Ltd., 250 F.3d 300, 302 (5th Cir. 2001). The district court found BAC possessed the original of both the note and the certificate of lost note and rejected Einhorn’s suggestion that this signified anything more than the lost note resurfacing at some point.

Citing Leyya, Einhorn argued to the court that BAC should not be able to fill a gap in its document production with an assignment he produced. Leyva resembles the Einhorn case in that the beneficiary failed to bring a key assignment to the mediation. 127 Nev. at _, 255 P.3d at 1279. But the Court explained that in Leyya, unlike this case, the key assignment was completely missing! Moreover, the beneficiary argued that “because it provided … a notarized statement from its employee claiming that it was the rightful owner of the deed of trust, no written assignment was necessary.” Id. The Supreme Court in Leyva therefore rejected the argument that an affidavit attesting that there had been an assignment could substitute for the written assignment itself:

NRS 107 .086( 4) uses the mandatory “shall” to express its requirement that “each assignment of the deed of trust or mortgage note” be presented at the mediation. Its purpose is “to ensure that whoever is

foreclosing ‘actually owns the note’ and has authority to modify the loan.” Leyva, 127 Nev. at _, 255 P.3d at 1279 (quoting Hearing on A.B. 149 Before the Joint Comm. on Commerce and Labor, 75th Leg. (Nev.,

February 11, 2009) (testimony of Assemblywoman Barbara Buckley)). The court held that this purpose is not achieved if key documents, whose production the Legislature has mandated, are missing entirely.

For these reasons, the court explained that Leyva holds that “strict compliance” with NRS 107.086(4) is required. Id. Of note, NRS 107.086(5) says that the district court “may” impose sanctions for violations of NRS 107.086(4) and (5), a discretionary determination this court reviews for abuse. Id. at _, 255 P.3d at 1281. Despite this deferential standard, Leyva reversed the district court’s decision to issue an FMP certificate. We deemed it an abuse of discretion to allow the foreeclosure to proceed without the documents needed to determine who could enforce and therefore negotiate with respect to the note and proceed with foreclosure of the deed of trust. Id.

As noted, the Einhorn case differs from Leyva in that the homeowner brought the missing assignment needed to make the chain of transfers complete. Thus, the note, deed of trust, and “each assignment of the deed of trust or mortgage note” were available at the mediation and in the district court. Einhorn argued unsuccessfully on appeal that NRS 107.086(4) provides that “[t]he beneficiary of the deed of trust shall bring to the mediation the original or a certified copy of the deed of trust, the mortgage note and each assignment of the deed of trust or mortgage note.” (Emphases added.) Since the beneficiary (BAC) did not produce all assignments, Einhorn argued that BAC failed to strictly comply with NRS 107.086(4), as required by Leyva, and sanctions mandatorily follow.

Einhorn also objected to the CountrywidelMERS-7Deutsche Bank assignment, arguing that while acknowledged, is was not certified. The court rejected Einhorn’s arguments as follows: “[A] court’s requirement for strict or substantial compliance may vary depending on the specific circumstances.” Leven v. Frey, 123 Nev. 399, 407, 168 P.3d 712, 717 (2007).

The Supreme Court then pointed out that in general, “‘time and manner’ requirements are strictly construed, whereas substantial compliance may be sufficient for ‘form and content’ requirements.” Id. at 408, 168 P.3d at 718; see id. at 408 n.31, 168 P.3d at 718 n.31 (noting that one part of a statute can be “subject to strict compliance, even though other aspects of the statutory scheme were subject to review for substantial compliance”).

Furthermore, the court noted that strict compliance does not mean absurd compliance. Pellegrini v. State, 117 Nev. 860, 874, 34 P.3d 519, 528 (2001) (“[W]e must construe statutory language to avoid absurd or unreasonable results …. “); 2A Norman J. Singer & J.D. Shambie Singer, Statutes and Statutory Construction § 46:2, at 162 (7th ed. 2007) (“Statutes should be read sensibly rather than literally and controlling legislative intent should be presumed to be consonant with reason and good discretion.”).

In NRS 107.086(4), the Legislature directed that certified copies of the note, deed of trust, and all assignments be present at the mediation to ensure that the party seeking to foreclose is the person entitled to enforce the note and to proceed with foreclosure and hence the party authorized to negotiate a modification of either or both. While Leyya properly holds that strict compliance with the statute’s document mandate is required, who brings which documents, assuming they are all present, authenticated, and accounted for, is a matter of “form.” Leven, 123 Nev. at 408, 168 P.3d at 718. Only if a specified document is missing does it matter who had the burden of providing it.

The Supreme Court noted that Einhorn brought to the mediation the missing assignment needed to complete BAC’s chain of title. Since the assignment included a certificate of acknowledgment before a notary public, it carries a presumption of authenticity, NRS 52.165, that makes it “self-authenticating.” 31 Charles Alan Wright & Victor James Gold, Federal Practice and Procedure: Federal Rules of Evidence § 7142, at 259 (2000) (discussing Fed. R. Evidence 902(8), an earlier draft of which Nevada adopted, with slight modifications, as NRS 52.165); see Fed. Home Loan Mtge. Corp. v. Schwartzwald, 957 N.E.2d 790, 798 (Ohio Ct. App. 2011) (deeming notarized assignments to be self-authenticating under Ohio’s version of Fed. R. Evidence 902(8)), reversed on other grounds by Fed. Home Loan Mtge. v. Schwartzwald, _ N.E.2d. _, 2012 WL 5359243 (Ohio October 31, 2012).

In addition, Einhorn’s attorney advised the district court that he obtained his copy of the assignment from the county recorder’s office, which “is sufficient to authenticate the writing.” NRS 52.085.

In summary the court held that all of the title documents needed to determine BAC’s entitlement to enforce the note and to foreclose were authenticated and present at the mediation.

Hence, the court concluded that the district court did not abuse its discretion in denying sanctions and allowing the FMP certificate to issue so that foreclosure could proceed. See Leyva, 127 Nev. at _ n.10, 255 P.3d at 1281 n.10. The court also rejected Einhorn’s other points and held that BAC provided a proper appraisal and had participated in the new foreclosure mediation program in good faith.

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