One of the most successful states at restoring due process and the rule of law to the foreclosure process has been Nevada. The state put into law the simple principle that, before a bank takes someone’s home away, they must actually prove that they own the property. And if they try to fabricate that property ownership, whether to just save time or money or because they actually cannot prove the underlying claim, they will have committed a criminal act subject to sanction. There’s nothing really unusual about this – the law amounts to saying “criminal violations are criminal.” That it has had a major effect on foreclosure operations in the state speaks not to the stringent nature of the law, but to the complete inability on the part of lenders to prove ownership of the loans without resorting to fraud.

So of course, the banking industry wants to repeal the law:

Foreclosures in Nevada could spike next year if lawmakers and banks roll back a bill passed in 2011 that played a large role in stymieing banks’ attempts to retake homes from Nevadans, according to the state’s banking association president and housing analysts […]

At issue is Assembly Bill 284, a measure passed by the Nevada Legislature in 2011 and signed by Republican Gov. Brian Sandoval that forces banks to prove they have the legal right to foreclose on a particular home before they take action. Most important, the law requires bank workers to sign an affidavit that they have personal knowledge of a property’s document history, or they will face criminal or civil penalties.

Democratic lawmakers and Cortez Masto, who helped pass the bill, said the law was intended to uphold the integrity of the legal process and protect homeowners from banks wrongfully foreclosing on homeowners without having necessary paperwork. She has said it was never intended to prevent legitimate foreclosures.

But after the law took effect in late 2011, foreclosures in Nevada — which previously led the nation in foreclosures — ground to a halt.

Nevada still saw 1,417 foreclosure filings in November, a healthy amount for a small state. However, before the law, in August 2011, foreclosure notices were at 5,350.

Whose problem is that? Certainly not the state of Nevada’s. They simply said that you cannot fabricate paperwork to foreclose on a borrower. Banks are essentially saying here that they cannot fulfill their obligations without resorting to fraud. Furthermore, they want to be relieved of anti-fraud statutes in order to restart the foreclosure engine. Banks are trying to draw a line between “legitimate” and “illegitimate” foreclosures. News flash: if you cannot perform a foreclosure without false documents, it’s illegitimate. Period.

Cortez Masto, at one time a champion on these issues, plans to convene a “working group” to discuss changes to the law to make things easier for banks. She says that this will clarify some of the terms of the law rather than repealing any portion of it. But just the fact that banks think following the law and using legitimate documents in foreclosures is too onerous should tell you something.

The amazingly named Tick Segerblom, a Democrat who chairs the Senate Judiciary Committee in Nevada, has exactly the right idea here:

“If it comes down to a homeowner who had a mortgage, or a bank — who has the right to be there? I’ll go with the homeowner,” he said. “I’m not worried about the banks. They made their beds. They can sleep in it.”


David Dayen

David Dayen