Justices hear warnings that companies may skirt law aimed at curbing foreclosures

CARSON CITY — Lawyers and residents warned the Supreme Court on Tuesday that banks and mortgage loan companies might try to circumvent a new state law designed to reduce the number of foreclosures in Nevada.

One said those companies will send "sitters" to the mandatory mediation hearings required by the law who do not have any authority to offer loan modifications to homebuyers facing foreclosure.

Another said it will be extremely difficult to find out who owns the loan on which a homebuyer is in default and facing foreclosure.

Reno attorney Robert Hager said mortgage companies typically make loans on money they receive from investors.

With the billions of federal bailout dollars given to banks over the past year, Hager contended it might be the American taxpayers who own the loans on mortgages now in default.

"No one can tell me who owns my loan," said Reno resident Lauren Kay, who said her home is in default. "Countrywide says it is only the servicer of the loan."

Under tentative rules developed by a Supreme Court task force, a homebuyer who receives a default notice after July 1 — the effective date of the law — could request a hearing before a court-appointed mediator to see if the lender will agree to new loan arrangements.

Both homebuyers and lenders would be required to submit loan modification proposals to the mediator.

Justices made little comment on the concerns raised Tuesday, but they could change the regulations based on what they heard.

The proposed regulations, designed to battle the foreclosure epidemic facing Nevada homebuyers, received their first public hearing Tuesday. Another hearing will be held at noon Monday in the court chambers on the 17th floor of the Regional Justice Center in Las Vegas.

The rules are designed to put into effect Assembly Bill 149, legislation drawn up by Assembly Speaker Barbara Buckley, D-Las Vegas, that passed overwhelmingly in the Legislature and was signed into law by Gov. Jim Gibbons.

Final rules will be adopted June 29 by the Supreme Court.

Hearings at which homebuyers and lenders will meet with mediators and try to work out solutions will begin in August.

Chief Justice Jim Hardesty said he expects 1,200 to 1,500 homebuyers will request the mediation hearings every month.

Buckley estimated that the new law could save 17,700 homes that otherwise would have been lost to foreclosure.

But she emphasized from the beginning that the law would help only those who still have the means to pay a mortgage.

Nevada leads the nation in its foreclosure rate. Last year 77,000 people lost their homes to foreclosure in the state.

The proposed rules also would require homebuyers to prepare financial statements, including stating exactly what they can afford to pay on a mortgage.

At the same time, lenders would have to release appraisals showing the current worth of the home on which they seek to foreclose and estimates of what the home would sell for in a "short sale."

Short sales are the way many lenders now dispose of the glut of foreclosed homes. Prospective buyers submit bids for a property that generally are far short of the amount of the existing loan. Lenders decide whether to accept those bids.

Justice Mark Gibbons on Tuesday questioned why lenders do not offer "short financing" to existing homebuyers facing foreclosure, seeing they already agree to short sales.

Gibbons said lenders should be aware that a home worth $300,000 two years ago might be worth only $150,000 today and be willing to make loan modifications based on the new value.

With the required information from the lender and the buyer, the mediator then can strive to see if the two sides can agree to loan changes that would keep the buyer in the home.

Lenders, under the law, however, are not required to agree to new loan arrangements.

Already more than 350 lawyers, former judges and trained mediators have applied to serve as mediators. They will be paid a maximum of $400, half of which will be paid by the homebuyer and half by the lender.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.