Title: Pasillas v. HSBC Bank USA

State: nevada

Issuer: Nevada Supreme Court

Document:

427 Nev., Advance Opinion 21
IN THE SUPREME COURT OF THE STATE OF NEVADA

EMILIANO PASILLAS AND YVETTE No. 56393
PASILLAS,
Appellants,

‘8.
HSBC BANK USA, AS TRUSTEE FOR FILED
LUMINENT MORTGAGE TRUST;
POWER DEFAULT SERVICES, worat

TRUSTEE; AND AMERICAN HOME

MORTGAGE SERVICING, INC.,
Respondents,

Appeal from a district court order denying a petition for

  

judicial review arising in a foreclosure mediation action. Second Judicial
District Court, Washoe County; Patrick Flanagan, Judge.
Reversed and remanded.

‘Terry J. Thomas, Reno,
for Appellants,

Pite Duncan, LLP, and Gregg A. Hubley, Laurel I. Handley, and Cuong M.

Nguyen, Las Vegas,
for Respondents.

BEFORE THE COURT EN BANC.

 

 
OPINION

By the Court, HARDESTY, J.:

In this appeal, we consider issues arising out of Nevada's

 

Foreclosure Mediation Program and address whether a lender commits
sanctionable offenses when it does not produce documents and does not
have someone present at the mediation with the authority to modify the
loan, as set forth in the applicable statute, NRS 107.086, and the
Foreclosure Mediation Rules (FMRs).

Because NRS 107.086 and the FMRs expressly require that
certain documents be produced during foreclosure mediation and that
someone with authority to modify the loan must be present or accessible
during the mediation, we conclude that a party's failure to comply with
these requirements is an offense subject to sanctions by the district court,
In such an event, the district court shall not direct the program
administrator to certify the mediation to allow the foreclosure process to
proceed until the parties have fully complied with the statute and rules
governing foreclosure mediation.

Here, because respondents HSBC Bank USA, Power Default
Services, and American Home Mortgage Servicing, Ine. (AHMSD), did not
bring the required documents to the mediation and did not have access to
someone authorized to modify the loan during the mediation, we conclude
‘that the district court erred in denying appellants Emiliano and Yvette
Pasillas’s petition for judicial review. ‘Therefore, we reverse the district
court's order and remand this matter to the district court so that the court
may determine sanctions,

 
a 06 Se

 

FACTS AND PROCEDURAL HISTORY
‘The Pasillases purchased a home in Reno in 2006 with a loan
from American Brokers Conduit. The note and deed of trust were
allegedly assigned to HSBC.! Near the end of 2009, Power Default
Services became a substitute trustee, removing HSBC from that role,
Allegedly, the servicer for the Pasillases’ loan is AHMSI.

  

When the Pasillases defaulted on their mortgage and received
‘@ notice of election to sell, they elected to mediate pursuant to the
Foreclosure Mediation Program provided for in NRS 107.086. Two
separate mediations occurred, one on February 18, 2010, and one on
March 8, 2010, but neither mediation resulted in a resolution.

While a representative of AHMSI was available by phone at
both mediations, it is unclear whether HSBC was present or represented
by counsel. There is some disagreement between the parties regarding
who the respondents’ attorneys represented at the mediations and at the

hearing on the petition for judicial review. In the addendum to the

\The Pasillases claim that HSBC failed to provide a valid
assignment; the one it provided during the mediation was signed by
American Brokers Conduit but did not state who the assignee was.

*The parties do not argue and we do not reach the question of
whether AHMST is a valid agent for HSBC or the real party in interest, or
the “person entitled to enforce” the promissory note in this case. See In re
Veal, No. 09-14808, 2011 WL 2304200, at *12-14 (B.A.P. 9th Cir. June 10,
2011).

 

"These mediations were governed by the Foreclosure Mediation
Rules (FMRs) as amended on November 4, 2009,

 
one

mediator’s statement, the mediator stated that “HSBC .. . was identified
as Beneficiary ... and represented by Cuong Nguyen, Esq. of Pite Duncan,
LLP” In the second mediation, the mediator indicated that
“HSBC...was again identified as Beneficiary ...and represented by
Heather Hudson, Esq. of Pite Duncan, LLP.” However, in responding to
the Pasillases’ petition for judicial review, the Pite Duncan law firm
indicated that it was not counsel for HSBC. Specifically, the response
opened with the following statement: “Respondents AMERICAN HOME
MORTGAGE SERVICING, INC. (AHMSI), erroneously named herein as
HSBC BANK USA AS TRUSTEE FOR LUMINENT MORTGAGE
TRUST.” Respondents also claimed that the Pasillases were “incorrect
that Pite Duncan, LLP attended [the mediations] on behalf of HSBC.” At

 

oral argument before this court, respondents’ counsel stated that they
represented all of the respondents named in this case at the mediations,
but they did not dispute the mediator’s finding that respondents needed
additional authority from investors to agree to a loan modification.

After both mediations were completed, the mediator filed a
statement indicating that (1) “[t]he parties participated but were unable to
agree to a loan modification or make other arrangements,” (2) “[t]he
beneficiary or his representative failed to participate in good faith,” and
(8) “[t]he beneficiary failed to bring to the mediation each document
required.” The mediator also filed an addendum to his statement, wherein
he stated that two pages of the mortgage note were missing, that the
assignment purportedly assigning the mortgage note and deed of trust to
HSBC was incomplete, that instead of an appraisal HSBC provided a

 
i
My

os

broker's price opinion,* and that respondents stated they would need
additional investor approval before agreeing to a loan modification. ‘The
mediator concluded that he would not recommend that the administrator
issue a certificate authorizing further foreclosure proceedings because
HSBC “failed to participate in [the] mediation in good faith as evidenced
by its failure to produce required documents and information initially, or
subsequently to cure its failures.” The Pasillases subsequently filed a
petition for judicial review in the district court. In the petition, the
Pasillases requested sanctions in the form of a modification of their
mortgage and attorney fees.

‘The district court conducted a short hearing, during which the
only issue addressed was the parties’ failure to come to an agreement.
‘The district court did not address whether respondents failed to provide
the required documents at the mediation or whether respondents lacked
the requisite authority at the mediation to modify the loan. After the
hearing, the district court entered an order finding that “Respondent{s]
{have] met the burden to show cause why sanctions should not lie,” and
directed the Foreclosure Mediation Program administrator to issue a
certification authorizing the foreclosure to proceed. The Pasillases
appealed.

‘We note that while FMR 11(7)(b) currently allows for a broker's
price opinion in lieu of an appraisal, the rules applicable to this matter
called for an appraisal without mention of a broker's price opinion. In the
Matter of the Adoption of Rules for Foreclosure Mediation, ADKT 435
(Order Adopting Foreclosure Mediation Rules, June 30, 2009, and Order
Amending Foreclosure Mediation Rules and Adopting Forms, November 4,
2009).

 
8

DISCUSSION

In resolving this appeal, we must determine whether the
district court abused its discretion when it refused to enter sanctions
against respondents for failing to satisfy expross statutory requirements
and allowed respondents to continue with the foreclosure process. We
begin our discussion with a brief background of the Foreclosure Mediation
Program.
‘The Foreclosure Mediation Program

‘The Nevada Legislature enacted the Foreclosure Mediation
Program in 2009 in response to the increasing number of foreclosures in
this state. Hearing on A.B. 149 Before the Joint Comm. on Commerce and
Labor, 75th Leg. (Nev., February 11, 2009) (testimony of Assemblywoman
Barbara Buckley). ‘The program requires that a trustee seeking to
foreclose on an owner-occupied residence provide an election-of-mediation
form along with the notice of default and election to sell. NRS
107.086(2)(a)(3). If the homeowner elects to mediate, both the homeowner
and the deed of trust beneficiary must attend, must mediate in good faith,

provide certain enumerated documents,* and, if the beneficiary attends

With regard to the documents required, NRS 107.086(4) provides
that “[tJhe beneficiary of the deed of trust shall bring to the mediation the
original or a certified copy of the deed of trust, the mortgage note[,] and
each assignment of the deed of trust or mortgage note.” The FMRs echo
this documentation requirement nearly word for word. FMR 5(7)(a), FMR
7(2) also provides that “[t]he beneficiary of the deed of trust or its
representatives shall produce an appraisal...and shall prepare an
estimate of the ‘short ale’ value of the residence,”

 
through a representative, that person must have authority to modify the
Joan or have “access at all times during the mediation to a person with
such authority.” NRS 107.086(4), (5); FMR 5(7)(a). After the conclusion of
the mediation, the mediator must file a mediator’s statement with the
program administrator, indicating whether all parties complied with the
statute and rules governing the program. FMR 12(2). If the beneficiary
does not (1) attend the mediation; (2) mediate in good faith; (3) provide the
required documents; or (4) if attending through a representative, have a
person present with authority to modify the loan or access to such a

person, the mediator is required to

 

wubmit...a petition and
RS

107.086(5). The homeowner may then file a petition for judicial review

recommendation concerning the imposition of sanction

 

with the district court,’ and the court “may issue an order imposing such
sanctions against the beneficiary of the deed of trust or the representative
as the court determines appropriate.” See FMR 6(7)().8 But if the district

“If the homeowner fails to attend the mediation, the administrator
will certify that no mediation is required. NRS 107.086(6).

"Generally, if the parties fail to reach an agreement and neither
party files a petition for judicial review, the program administrator will
certify the mediation, which allows the foreclosure process to proceed.
NRS 107.086(8), (6), (D.

“The current version of the FMRs requires the district court to
review a case de novo when a party files a petition for judicial review.
FMR 21(5) (rules including amendments through March 1, 2011). De novo
review may include an evidentiary hearing concerning what transpired at
the mediation, See Black’s Law Dictionary 924 (9th ed. 2009) (defining
“de novo judicial review” as “[a] court's nondeferential review of an

administrative decision, usufally] through a review of the administrative
record plus any additional evidence the parties present”).

 

 
court finds that the parties met the four program requirements, it will
direct the program administrator to certify the mediation, allowing the
foreclosure process to proceed. See NRS 107.086(2)(c)(2), (3), (6), (7).

Rei led _to_meet ation
requirements

‘The Pasillases argue that respondents failed to meet the
program's requirements—the document requirement because respondents
failed to bring a complete mortgage note and failed to provide assignments
of the note and deed of trust, and the loan modification authority
requirement because they failed to have someone present at the mediation
with the authority to modify the loan. We agree.

‘The scope and meaning of a statute is a question of law, which

we review de novo. Arguello v. Sunset Station, Inc, 127 Nev.__, _P.3d
—— (Adv. Op. No. 29, June 2, 2011). Court rules are also subject to de
novo review. Moon v. McDonald Carano Wilson LLP, 126 Nev...

245 P.3d 1138, 1139 (2010). “When the language in a provision is clear
and unambiguous, this court gives ‘effect to that meaning and will not
consider outside sources beyond that statute.” City of Reno v. Citizens for
Cold Springs, 126 Nev. __, __, 236 P.3d 10, 16 (2010) (quoting NAIW v.
Novada Self-Insurers Association, 126 Nev. __, __, 225 P.8d 1265, 1271
(2010).

Both NRS 107.086 and the FMRs use the word “shall” or
“must” when listing the actions required of parties to a foreclosure
mediation. Use of the word “shall” in both the statutory language and the
FMRs indicates a duty on the part of the beneficiary, and this court has
stated that “shall’ is mandatory unless the statute demands a different
construction to carry out the clear intent of the legislature.” $.NLEA. v.
Daines, 108 Nev. 15, 19, 824 P.2d 276, 278 (1992). Additionally, Black's

 

 
Ss

Law Dictionary defines “shall” as meaning “imperative or
mandatory... . inconsistent with a concept of discretion.” 1375 (th ed.
1990). And as it is used here, “must” is a synonym of “shall.” We conclude
that NRS 107.086(4) and (5) and FMR 6(7)(a) clearly and unambiguously
mandate that the beneficiary of the deed of trust or its representative (1)
attend the mediation, (2) mediate in good faith, (3) provide the required
documents, and (4) have a person present with authority to modify the
Joan or access to such a person.

Here, the mediator’s statement and his addendum to that

statement, which were provided to the district court in the Pasillases’

 

petition for judicial review, clearly set out respondents’ failure to bring the
required documents to the mediation and to have someone present with
authority to modify the loan, Additionally, respondents do not dispute
that they failed to bring all the required documents to the mediation.

 

 

°At oral argument, respondents’ counsel argued that an assignment
for the mortgage note was provided, but the name of the assignee was
missing. We determine that an assignment provided without the name of
the assignee is defective for the purposes of the Foreclosure Mediation
Program because it does not identify the relevant parties.

 

‘The Supreme Judicial Court of Massachusetts recently reached the
same conclusion regarding the production of assignments to mortgage
notes and deeds of trust, albeit in a slightly different context. In U.S.
Bank National Ass'n v, Ibanez, 941 N.E.2d 40 (Mass. 2011), two separate
banks foreclosed on the mortgages of two homeowners whose properties
the banks then bought at the foreclosure sales. Id, at 44, The banks later
filed complaints in the lower court seeking a declaration that they had
clear title to the properties. Id. Because the banks failed to show an
interest in the mortgages at the time of the foreclosure sales, the sales
were invalid, and the lower court entered judgment against the banks. Id,
at 45. On appeal, the court determined that, similar to this case, the

continued on next page .

 

 

 
9 8

Although respondents argue on appeal that their counsel at the mediation
“had the requisite authority and/or access to a person with the authority to
modify the loan,” they do not controvert the mediator’s statement that
their counsel claimed at the mediation that additional investor approval

was needed in order to modify the loan. The record before the district

 

court demonstrates that respondents failed to meet the statutory

requirements. Nonetheless, respondents argue that the district court's

 

 

conclusion that sanctions were unwarranted did not constitute an abuse of

discretion because, despite the failures noted above, they mediated to
resolve the foreclosure in good faith. We disagree,

continued

banks were not the original mortgagees and, therefore, they had to show
that the mortgages were properly assigned to them in writings signed by
the grantors before they could notice the and foreclosures of the
properties. Id. at 51. In an attempt to prove that they had the authority
to foreclose on the properties, the banks provided contracts purporting to
assign to them bundles of mortgages; however, the attachments that
identified what mortgages were being assigned were not included in the
documents provided. Id, at 52. ‘The court concluded that the banks
demonstrated no authority to foreclose on the properties because they did
not have the assignments. Id. at 53 (“We have long held that a conveyance
of real property, such as a mortgage, that does not name the assignee
conveys nothing and is void; we do not regard an assignment of land in
blank as giving legal title in land to the bearer of the assignment.”), The
court additionally stated that “[a] plaintiff that cannot make this modest
showing cannot justly proclaim that it was unfairly denied a declaration of
clear title.” Id. at 52. We agree with the rationale that valid assignments
are needed when a beneficiary of a deed of trust secks to foreclose on a
property.

 

10

 
Standard of review

At the outset, we establish that we will review a district

court's decision regarding the imposition of sanctions for a party's
participation in the Foreclosure Mediation Program under an abuse of
discretion standard. See Arnold v, Kip, 123 Nev. 410, 414, 168 P.3d 1050,
1052 (2007) (abuse of discretion standard used to review district court's
imposition of sanctions on a party for discovery abuses); Banks v. Sunrise
Hospital, 120 Nev. 822, 830, 102 P.3d 52, 68 (2004) (reviewing sanctions
imposed for spoliation of evidence under an abuse of discretion standard),

When determining whether the district court has abused its discretion in

 

such cases, we do not focus on whether the court committed manifest

 

error, but rather we focus on whether the district court made any errors of

law.
Failure to satisfy statutory mandates is a sanctionable offense

‘As discussed above, under NRS 107.086(5), there are four
distinct violations a party to a foreclosure mediation can make: (1)
“failfure] to attend the mediation,” (2) “failfure] to participate in the
mediation in good faith,” (3) failure to “bring to the mediation each
document required,” and (4) failure to demonstrate “the authority or
access to a person with the authority [to modify the loan}.” If any one of
these violations occurs, the mediator must recommend sanctions. Id, If
‘the homeowner petitions for judicial review, “[tJhe court may issue an
order imposing such sanctions against the beneficiary of the deed of trust
or the representative as the court determines appropriate.” Id, We
interpret NRS 107.086(6) to mean that the commission of any one of these
four statutory violations prohibits the program administrator from

u

 
one

 

certifying the foreclosure process to proceed and may also be sanctionable.
‘See Tarango v. SUS, 117 Nev. 444, 451 n.20, 25 P.8d 175, 180 n.20 (2001)
(explaining that “may” can be interpreted as “shall” in order to carry out
the Legislature's intent, which in the instant case was to make mandatory
the requirements set forth in NRS 107.086(6))

In this case, despite the mediator’s opinion that respondents
did not participate in the mediation in good faith based on their failure to
comply with the FMRs, the district court did not impose sanctions and
instead entered a Letter of Certification that allowed respondents to
proceed with the foreclosure process on the Pasillases’ property, The
district court essentially ignored the fact that respondents failed to bring
“to the mediation each document required” and did “not have the authority
or access to a person with the authority” to modify the loan, failures which
we determine constitute sanctionable offenses. ‘Thus, the district court's
order directing the program administrator to enter a letter of certification
and its failure to consider sanctions was an abuse of discretion because
respondents clearly violated NRS 107.086 and the FMRs.!° This abuse

WRespondents argue that this court should decline to address the
Pasillases’ argument that respondents failed to provide someone at the
mediation with the authority to modify the loan because it was not raised
in the petition for judicial review. First, we note that our decision here
would require the district court to impose sanctions even if respondents’
only omission was the failure to provide the required documents,
However, we determine that the Pasillases adequately raised this issue in
their petition for judicial review by alleging that respondents’ counsel at
the mediations did not accurately state who they were representing.
‘Therefore, our decision of the issue is appropriate.

 

12

 
requires us to remand the case for the district court to consider
appropriate sanctions.

The nature of the sanctions imposed on the beneficiary or its
representative is within the discretion of the district court. We have
previously listed factors to aid district courts when considering sanctions
punishment for litigation abuses. See Young v, Johnny Ribeiro
Building, 106 Nev. 88, 93, 787 P.2d 777, 780 (1990); see also Bahena v.
Goodyear Tire & Rubber Co,, 126 Nev. _, __, 285 P.3d 592, 598-99
(2010); Arnold, 123 Nev. at 415-16, 168 P.3d at 1053. However, we
conclude that other factors, more specific to the foreclosure mediation

 

 

context, apply when a district court is considering sanctions in such a case.
When determining the sanctions to be imposed in a case brought pursuant
to NRS 107.086 and the FMRs, district courts should consider the

following nonexhaustive list of factors: whether the violations were

 

intentional, the amount of prejudice to the nonviolating party, and the

 

violating party's willingness to mitigate any harm by continuing
meaningful negotiation.

Because, in this case, the foreclosing party's failure to bring
the required documents to the mediation and to have someone present at
the mediation with the authority to modify the loan were sanctionable
offenses under the Foreclosure Mediation Program, the district court
abused its discretion when it denied the Pasillases’ petition for judicial
review and ordered the program administrator to enter a letter of
certification authorizing the foreclosure process to proceed. Therefore, we

 

 
reverse the district court's order and remand this matter to the district

court with instructions to determine the appropriate sanctions for

respondents’ violations of the statutory and rule-based requirements.

iA at. 4.
Hardesty