Wednesday, April 13, 2011

Proposed Bill Deprives Las Vegas Mortgage Lenders of their Rights

The Nevada Legislature is discussing a proposed law that would eliminate liability for many residential loans after a shortsale or foreclosure on primary residences (not Las Vegas investment properties). Not a horrendous idea, and one already in effect in a couple of states. But this proposed bill deprives Las Vegas mortgage lenders of their rights!

The problem with the Nevada version is that this proposal would be retroactive! This means that residential loans on primary residences that were written a year, ten years or even twenty years ago would be affected, and the lender would not be able to pursue a deficiency judgment against the borrower even though that was part of "the deal" in the original contract.

This is a truly horrendous precedent. (Not to mention that in actual fact very few lenders ever pursue a deficiency judgment and very few people would actually benefit from this law.) The crucial point is: this law changing the terms of a contract that was entered into in good faith by both parties to the detriment of one of those parties. It is one thing to change the law to read that mortgage lenders do not have the right to pursue a deficiency judgment on loans written for personal residences in the future AFTER the bill is passed. But it is quite another to make such a bill retroactive. This deprives the lender of their ability to collect on a loan that was already granted on terms agreed to by both the lender and the borrower. The lender made the decision to lend based on those terms.

No one feels more for the families affected by the recent Las Vegas real estate bust - I deal with absolutely heartbreaking stories every day. I have sat down and cried with distressed homeowners at the kitchen table too many times to count. And I also own properties that are shockingly upside down in value myself. But to negate one of the basic terms of a contract because the economy is bad and deprive one of the parties to that contract of their legal rights after the fact is not good business in any economy.

In the future, this could apply to any contract. What if the courts should decide that just because you decide to stop making payments on your car, the lender is not entitled to repossess it because it is your only means of transportation to work? The auto industry would come to a screeching halt. Thousands would be laid off and prices on new cars would skyrocket. You have tenants in Las Vegas homes that can't pay their rent. But you can't evict them because they just passed a law that lets them stay rent free. No one would buy rental properties, the real estate market would plunge further and again thousands would be laid off in the construction industries. Your employer has a contract with you stating they will give you certain benefits, say a matching contribution for a 401k. But now a new law is passed saying that retroactively they can take back those benefits because the economy is poor and they "need" the money to stay in business. There goes your retirement.

It is just dangerous to make retroactive changes to a contract to the detriment of one of the parties who entered into that contract in good faith. Business can't stay in business that way. You might be on the "right" side of the law this time if you are facing foreclosure in Las Vegas, but tomorrow you could easily find yourself on the "wrong" side. This kind of thinking undermines the principles on which our entire country was founded.

SB 346 has to make it out of Senate Judiciary Committee to get a vote on the Senate Floor. The deadline is Friday April 15, 2011 for the bill to pass out of the committee, otherwise it just goes away. Please contact the members of the Judiciary Committee below and tell them to vote NO to SB 346, and do it today!

• Valerie Wiener – Chair – vwiener@sen.state.nv.us
• Allison Copening – Vice Chair - acopening@sen.state.nv.us
• Shirley A. Breeden – sbreeden@sen.state.nv.us
• Ruben J. Kihuen – rkihuen@sen.state.nv.us
• Mike McGinness – mmcginness@sen.state.nv.us
• Don Gustavson – dgustavson@sen.state.nv.us
• Michael Roberson – mroberson@sen.state.nv.us

And once you have contacted the Senate Judiciary Committee, forward this post to all your friends so they can do the same. This law is NOT in the best interests of any Nevadan!

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