Nevada Rejects Literalist View on Some Lender and Trust Deed Holder Requirements for the Right to Enforce

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Nevada’s Foreclosure Mediation Program (FMP), statutorily mandates mediation before a non-judicial foreclosure of an owner-occupied residence can proceed. It also encourages the judicial review of that mediation. It has been a steady source of litigation in Nevada since its inception in 2009. Much of the litigation at the District Court level centers on the FMP’s mandate that parties mediate in “good faith,” what facts constitute “bad faith,” the constitutionality of the FMP, who may prosecute a foreclosure, and in what form evidence of trust-deed ownership must be brought to the mediation in order to proceed in the non-judicial foreclosure process. Slowly, appeals and writs have been making their way to the Nevada Supreme Court and opinions are now being issued.  See Snell & Wilmer Legal Alert, October 4, 2012, “Nevada Upholds MERS in Foreclosure Proceedings.” [1]
 
The most recent opinion in this line, Einhorn v. BAC Home Loans Servicing, LP, 128 Nev. Adv. Op. 61 (December 6, 2012) addresses the document production requirements that a trust-deed holder must meet in order to establish ownership of the underlying note and the right to foreclose. Einhorn provides valuable guidance to both residential and commercial lenders and holders of trust-deeds. The full opinion can be viewed here.
 
The FMP mediator in Einhorn found that respondent, BAC Home Loan Servicing, LP (BAC) did not act in bad faith, but “failed to bring to the mediation each document required,” citing a gap in the assignments leading to BAC’s purported ownership of the note. The mediator declined to issue a Letter of Certification. BAC petitioned for judicial review to the District Court.
 
The District Court disagreed with the FMP mediator and found that a certification signed by BAC’s trustee established that “the original Deed of Trust, Promissory Note and the missing Assignment of Promissory Note and/or Deed of Trust” were in BAC’s possession and therefore there was “no irregularity” as to the documents submitted at mediation. Einhorn appealed and the Nevada Supreme Court affirmed, but not without some useful guidance.
 
The Court began its analysis by examining the BAC trustee’s certification. The BAC trustee’s certification provided that attached to the certification were true copies of the 2006 Countrywide note, a deed of trust naming Countrywide as lender and MERS as beneficiary, a Countrywide lost note certification (at odds with the existence of the original note that was attached) and an assignment dated August 2010 in which Deutsche Bank National Trust Company transferred to BAC all beneficial interest in the Einhorn note. 

The Court noted that an assignment from MERS to Deutsche Bank where Deutsche Bank came into title was not attached to the BAC trustee’s certification. The Court noted that “[s]ince the assignment by which Deutsche Bank came into the chain of title is not attached, the only fair inference to be drawn is that the trustee did not have that assignment in its possession to certify.” BAC argued that the Court did not need to consider the chain of assignment because BAC and Countrywide were “one and the same entity.” BAC's argument was that although the note was made payable to Countrywide and had never been endorsed, BAC is Countrywide and is entitled to enforce the note and the deed of trust as the owner in possession of both. A valid argument, which is likely being made in District Courts in Nevada, but one that will have to await a separate and future appeal to the Nevada State Court. The Court declined to consider the argument as it had not been raised in the District Court proceedings prior to appeal.  At this point in the opinion, all seemed lost for BAC as it could not prove that it had acquired the right to enforce the Einhorn note from Deutsche Bank.
 
In a twist, the Court then found that Einhorn filled in the fatal gap by producing an uncertified copy of the Countrywide/MERS to Deutsche Bank assignment at the mediation and at the District Court. Einhorn had procured the missing assignment from the county recorder’s office. The assignment was signed by an assistant secretary of MERS, Angela Nava. Her signature was acknowledged and notarized.

Einhorn did his best to attack the assignment on appeal. First, he argued that the assignment was flawed because Ms. Nava signed the assignment on October 23rd, while the notary’s acknowledgment of her signature was not taken until October 30th. The Court rejected the argument and noted that “actually signing the record in the presence of a notarial officer is not necessary as long as the individual declares, while in the presence of the officer at the time the acknowledgment is made, that the signature already on the record is, in fact, the signature of the individual.” Second, Einhorn claimed that the assignment was flawed because Ms. Nava acted as an assistant secretary to both MERS and Deutsche Bank. The Court also rejected this argument, citing to the 9th Circuit’s finding in Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1040 (9th Cir. 2011), which found Ms. Nava’s dual role “unremarkable” and explaining that MERS relies on its members like Deutsche Bank to have someone on its staff become an officer of MERS with authority to sign documents on behalf of MERS. Finally, Einhorn argued that BAC should not be allowed to fill the chain of ownership gap with a document he produced.  NRS 107.086(4) mandates 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 …” [emphasis in original]. The Nevada Supreme Court’s opinion in Leyva v. National Default Servicing Corp., 255 P.3d 1275, 1279 (Nev. 2011) holds that “strict compliance” with NRS 107.086(4) is required. Einhorn argued that since the beneficiary, BAC, did not produce the missing assignment, it did not strictly comply with the requirements of NRS 107.086(4), nor was the missing assignment, which Einhorn supplied, a certified photocopy.
 
The Court rejected Einhorn’s “literalist’s view.” While acknowledging Leyva’s strict compliance standard, the Court held, “who brings which documents, assuming they are all present, authenticated, and accounted for, is a matter of ‘form’. Only if a specified document is missing, does it matter who had the burden of providing it.” With regard to the issue of certification, the Court found that a certificate of acknowledgment before a notary carries a presumption of authenticity that makes such a document “self-authenticating.” Also, the Court noted that the missing assignment was obtained by Einhorn at the county recorder’s office, which is also sufficient to authenticate a writing. Thus, because all of the necessary documents were produced at the mediation and all were authenticated, the Court concluded that ”strict compliance with NRS 107.086(4)’s purposive requirements was achieved. To make the outcome on who brought the documents, the authenticity of which was adequately established under conventional rules of evidence, exalts literalism for no practical purpose.”
 
Einhorn’s usefulness lies in that the Court put to rest a few of the hyper-technical arguments made at the District Court level to challenge a lender or trust-deed holder’s right to foreclose. The Court’s holdings are not limited to the residential foreclosure process, but are relevant to commercial, non-judicial foreclosures, too. Lenders, services, trust-deed holders and counsel should note that after Einhorn:

  • A trustee’s signature affixed to a document before the trustee declares it to be his/her signature before a notary is valid and not a basis to attack a certification establishing a chain of ownership.
  • The fact that a certifying trustee is both an officer of MERS and a staff member of a lender, trust-deed holder or servicer will not invalidate a certification attesting to chain of title and the authenticity of documents.
  • Strict compliance with NRS 107.086(4) requirement that a trust deed beneficiary establish a complete chain of title evidencing the right to foreclose at an FMP mediation is required. However, a literal reading of the statute’s requirement that a trust-deed beneficiary produce these documents is rejected. Who produces the documents at mediation to establish chain of title is immaterial.
  • The fact that a document evidencing an assignment in the chain of title is not certified is not a sound basis to invalidate the document, if it is self-authenticating via a certificate of acknowledgment before a notary or was procured from the county recorder’s office.

[1] Pending appeals on this topic include: Sandpoint Apartments, LLC et al. v. Eighth Judicial Court, Case No. 59507 (Retroactive application of Assembly Bill 273, limiting the amount of a deficiency judgment to the consideration paid for the right to seek a deficiency); Wells Fargo Bank v. Renslow, Case No. 58283 (Challenging the constitutionality of the FMP); Nielsen et al. v. Branch Banking and Trust Co., et al. Case No. 59823 (Whether, under Assembly Bill 273 and NRS 40.451, an assignee of an original lender must prove the amount of consideration paid for the rights under the loan in order to obtain a deficiency) and Lavi v. Eighth Judicial District Court, et al., Case No. 58968 (Whether a waiver of Nevada’s “One Action Rule” also constitutes a waiver of the statute of limitations to apply for a deficiency judgment within six months of foreclosure).