New Nevada Legislation Stalls Foreclosures

The recent Nevada legislative session passed several new laws affecting real estate.  One of the most far-reaching is Assembly Bill 284 dealing with assignments and foreclosures of deeds of trust in the state.  Whereas Nevada used to be the state with the most foreclosures in the country before the passage of this bill, foreclosures have virtually stopped as lenders adjust to the new requirements under this legislation.

Previously, state law did not require that assignments of mortgages or beneficial interest of deeds of trust be recorded  (NRS 106.210, 107.070).  Section 1 of Assembly Bill 284 now requires any such assignment to be recorded in the office of the county recorder for the county where the property is located.  An assignee of a mortgage or deed of trust may not exercise a power of sale under a deed of trust until the assignment has been recorded in accordance with this section.  Subordination agreements are also included in this new requirement.

Sections 4, 7 and 8 increase the monetary penalties for the failure of a mortgagee, trustee or beneficiary under a deed of trust to discharge the mortgage or deed of trust within 21 days after the mortgage or deed of trust has been satisfied.  Section 6 sets out the only persons who are authorized to act as trustees for deeds of trust on property in Nevada.  Failure to comply with this section exposes the lender/trustee to fines of $5,000 or more.

The most important sections of Assembly Bill 284, however, deal with the imposition of civil or criminal sanctions upon lenders who engage in mortgage fraud, or who fail to properly document notices of default and foreclosure.

Section 9 of the bill requires that notices of default and foreclosure must include an affidavit setting forth certain information concerning the deed of trust, the amounts due, the possession of the note and the deed of trust and the authority to foreclose, and provides for a civil action against a person who exercises the power of sale under a deed of trust without complying with the provisions of law governing the exercise of that power.

Section 12 of the bill now requires that pay-off statements contain the following additional information: (1) the identity of the trustee, any trustee’s agent, the current holder of the note, the beneficiary of record and the servicers of the debt; and (2) if the debt is in default, the amount in default, the principal, interest, default fees and the cost and fees associated with the exercise of a power of sale.

Section 13 revises provisions relating to the crime of mortgage lending fraud by: (1) providing that a person who commits mortgage lending fraud is subject to a civil penalty of not more than $5,000; and (2) authorizing the owner or the holder of the beneficial interest in the real property to bring a civil action for damages suffered because of the conduct and for attorney’s fees and costs.

Section 14 is of particular interest to title companies.  It revises the crime of making a false representation concerning title and increases the penalty for such a crime from a gross misdemeanor to a category C felony. If the person engages in a pattern of making false representations concerning title, the person is guilty of a category B felony. In addition, a person who commits this crime is subject to a civil penalty of not more than $5,000, and the owner or the holder of the beneficial interest in the real property may bring a civil action for damages suffered because of the false representation and for attorney’s fees and costs.  Whether an unintentional omission or error in a title commitment or trustee’s sale guarantee would subject a title company to these penalties is unknown at this time, since no one knows what a “pattern of making false representations” means.

How this new legislation will be prosecuted or enforced is a real question that remains to be answered.  Until that time, lenders and title companies in Nevada must be very careful when dealing with property in default and foreclosure.  These changes can also affect lenders outside the state of Nevada who hold mortgage or deed of trust liens on property located in Nevada, and who may be ignorant of these important changes to the law.

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