Nevada Supreme Court offers foreclosure guidance to mortgage firms
Holding a mortgage note absent a proper transfer of assignment will prevent financial institutions from finalizing foreclosures on Nevada homeowners, the state's Supreme Court held when deciding Leyva v. National Default Servicing Corp. The case began in foreclosure mediation when Wells Fargo (WFC) brought forth the original deed of trust and mortgage note without having copies of mortgage assignments that showed the transfer of rights from the original lender to Wells Fargo. Anthony Laura, an attorney with Patton Boggs, said the Nevada Supreme Court in the Leyva case is essentially the state's "highest court telling foreclosing mortgagees what they need to be able to foreclose." "They are insisting on proper evidence of assignment of both the mortgage note and the deed of trust," Laura explained. Based on the findings of the court, when a party is trying to foreclose on a note originally payable to another firm that is not the foreclosing party, the note must first be "negotiated or transferred" to the party that is trying to foreclose, so the court knows that party now has the right to move forward with a foreclosure action. Laura said the case is essentially telling attorneys they have to follow Article III of the Uniform Commercial Code when dealing with notes that have moved down a line of succession, landing the note in the hands of a party who is not the original holder. To ensure a proper transfer is made so the final note holder has the power to foreclose, Laura says the note must be negotiated or officially signed over to the foreclosing party, essentially endorsing it like a check. "Without the negotiation of the note, if you just hand it to someone and don't sign it, it's ineffective," Laura said. "That is essentially what the court is saying. It looks like the mortgagee handed the note over to Wells Fargo, but didn't sign it over to Wells Fargo." Under this analysis, Wells never obtained the power to foreclose. Laura says the only other way to create an appropriate transfer of the note would be to execute a document that is expressly written up as a transfer. This would essentially be a second document that says something like "we hereby assigned the mortgage note." At this point, Laura said the party trying to foreclose in the Leyva case will have to go back and execute the proper assignments. He does not believe the court will accept the changes unless the parties start from scratch and initiate a new foreclosure action after making the necessary assignments. As far as how the case matches up to decisions in other states, Laura said "it's in line with some, and not in line with others." "Some courts have taken a broad view of assignment of mortgage related documents, and other states, like this one (Nevada), have taken a strict view so there has not been a general trend one way or the other," he explained. In another Nevada case, Pasillas v. HSBC Bank USA (HBC), the state Supreme Court held "if a party fails to provide the required documents (for a foreclosure) or either attend the mediation in person, or if the beneficiary attends through a representative, the person fails to have the authority to modify the loan or access to such a person, the district is required to impose appropriate sanctions." Write to Kerri Panchuk.