New law requires mediation for loan modification before foreclosure of owner occupied housing

A Sign of the Times

Here are the changes in the law . . .

Foreclosure rules have changed for owner occupied housing in Nevada. AB149, which becomes effective July 1, 2009, gives the borrower the right to demand that the lender enter into mediation to negotiate a loan modification prior to the Trustee's sale.

AB149 also changes the time in which the defaulting borrower on an owner occupied house can cure the default. Under existing law the borrower has 35 days from the recording of the Notice of Default in which to cure. Now, for owner occupied housing, the borrower has until 5 days before the scheduled Trustee's sale in which to cure.

Finally, AB149 revises the manner in which the borrower on an owner occupied home must be notified of the pending foreclosure and it prescribes a new notification form.

So what does all this mean?

First of all, this is the new full employment law for trained mediators! There will be a tremendous demand for mediators to fulfill the mediation requirements for owner occupied foreclosures. In May 2009, there were 950 Notices of Default filed in Washoe County, Nevada, and there is no decrease in sight. There are not nearly enough trained mediators to handle the anticipated demand.

On the other hand, the Legislature has imposed a salary cap on the mediators of $85 per hour. It may be difficult to find qualified mediators who are willing to work for $85 per hour.

From the perspective of the small business person, this may be a pain in the rear. It applies to all lenders on owner occupied property, regardless of whether they are institutional lenders or not. This will clearly add to the cost of foreclosing, and it may impose additional delays.

The good news for the small business person is that going into mediation does not constitute an automatic, mandatory loan modification. You have to negotiate, but you don't have to agree to a loan modification that doesn't work for you. It would be unconstitutional for the Legislature to pass a law which forces a party to a contract to modify the contract.

From the perspective of the borrower, the jury is still out as to whether AB129 will make any meaningful difference. One possible benefit to the borrower should be that the lender will at least have to consider a loan modification -- although as a practical matter most lenders are already willing to consider a loan modification rather than having to take the property back. A second possible benefit might be to accelerate the loan modification process. This might tend to force the lender to look at a loan modification sooner rather than later. A third benefit to the borrower is that it will probably allow the homeowner to stay longer in the home.

My opinion is that in the long run this will be a "feel good" measure which adds expense and delay to the foreclosure process without conveying any real benefit that would not already be possible under the old rule.

Our firm is knowledgeable about foreclosures, and we would be pleased to assist you in this area. Please contact us for a no-charge 1/2 hour consultation by clicking here.