Recent Lawsuits Challenge Nevada Private School Voucher Program

  • September 15, 2015

Nevada’s 2015 legislature passed SB302, a statewide private school voucher program. Under the law, any child who spends at least 100 consecutive days enrolled in a Nevada public school may apply for a direct transfer of public school fundschool_voucherss ($5,100 – $5,700 on average) to cover private school tuition and a wide variety of other expenses. Under the law, the money must be distributed by the state into individual education savings accounts (ESA’s), from which the funds may only be used to pay for private school tuition and other expenses. Read SB302 here.

The Nevada State Treasurer, Dan Schwartz, is busy setting up its program to administer applications and the distribution of the funds and has already established several application deadlines.

On August 27, 2015, the American Civil Liberties Union (ACLU), the American Civil Liberties Union of Nevada (ACLUNV), and Americans United for Separation of Church and State (AU) filed a lawsuit in Nevada’s Eighth Judicial District (State Court) in Las Vegas challenging the law. The lawsuit is entitled Duncan v. State of Nevada and you can read it here.  The ACLU Lawsuit is filed on behalf of several citizens who assert that the vast majority of Nevada private schools are religious schools that include religious instruction in their programs, and then directly quotes the marketing materials of dozens of such religious private schools in support of that assertion. The Complaint concludes that the law violates Article XI Section 10 of the Nevada Constitution, which prohibits the use of public funds for any sectarian purpose. The lawsuit also claims that the program runs afoul of Article XI, Section 2, which requires the legislature to provide for a uniform system of common schools.  The ACLU Lawsuit has some very capable lawyers behind it.

On September 9, 2015, a second lawsuit, Lopez v. Schwartz, was filed in the First Judicial District Court in Carson City (also a Nevada State Court) challenging the same law by parents and students who are seeking to prevent loss of funding from their children’s public schools to pay for private schools. The second lawsuit is supported by an advocacy group called Educate Nevada Now (ENN). The ENN lawsuit likewise has several capable law firms behind it.

ENN’s challenge is based on several different legal grounds than the ACLU Lawsuit.  The parents and students in the ENN Lawsuit contend that the voucher law violates the Education Article of the Nevada Constitution in three ways:

  • The voucher law by its terms diverts funds earmarked by the Legislature exclusively for the operation of the public schools to pay for private schools and other private expenditures.
  • The voucher law reduces State-guaranteed funding for Nevada’s public schools below the level determined by the Legislature to be sufficient in each biennium budget.
  • The voucher law allows public school funding to pay for private schools that do not have to comply with the “uniform” non-discrimination, education performance and accountability standards that all Nevada public schools must follow.
(Source: Educate Nevada Now)

The stakes involved in the two lawsuits are truly enormous. The financial impact of the voucher program is massive, unpredictable and potentially unlimited.  The two lawsuits and the legal challenges they present to the new Nevada Private School voucher law will also put families and students in a state of limbo while the cases play out. The cases will ultimately find their way to the Nevada Supreme Court, which should have the final say in the matter because both cases are solely based on Nevada state statutory law and state constitutional law, not federal law.

My initial reaction is that the two lawsuits present significant and very serious legal challenges to Nevada’s school voucher program. I hope that readers of this blog post will actually take the time to read the complaint in each lawsuit (linked above) to fully understand the Nevada state constitutional provisions that support the two lawsuits.  I am sure many folks have preexisting beliefs about whether school vouchers are good or bad. Such beliefs really have little bearing on whether the law violates the provisions of the Nevada State Constitution quoted in the lawsuits. In fact, while many people are well-versed on the text of the United States Constitution, I think most Nevadans have little or no awareness of the content of the Nevada State Constitution and its Article on Education.

To be fair, I have not seen the State’s legal position. In fact, the State has yet to file anything in response to the lawsuits. It is likely that the State will find support for the law in cases from other states upholding private school voucher programs under the other states’ laws. The Nevada cases will be unique in their legal standing, however, because both the new Nevada law and the Nevada State Constitution are unique.

Nevada families trying to make education choices which rely on the financial support of the voucher program will be extremely frustrated by these legal challenges. Although the ACLU case poses a legal challenge to religious private schools receiving state money, both lawsuits could impact enrollment in other private schools that have no religious programming while the law is under attack. As mentioned, the ENN Lawsuit challenges any private school, religious or not, receiving state money.

This will be an interesting case to follow. The stakes could not be any higher.

 

 

78th (2015) Nevada Legislature Session Summary

  • June 30, 2015

78th (2015) Nevada Legislature Session Summary

78th (2015) Nevada Legislature Session Summary 

The 78th Session of the Nevada Legislature wrapped up on June 1, 2015.  In total Governor Sandoval signed 549 bills into law and vetoed 6.  AB 483 is one of the more significant pieces of legislation which imposes new commerce taxes, as well as new fees and other taxes for Nevada businesses – learn more in this blog.

In this article you will find a very brief summary of a number of bills which Incline Law Group believes may be of relevance or interest to our readers.  For a full list of newly passed legislation or to read the full text of any bill, visit the Nevada Legislative Counsel Bureau website.

BILL #

EFFECTIVE DATE BILL SUMMARY

TYPE

SB 253

10/1/2015

Excludes “guaranteed asset protection waivers” from certain provisions that govern and regulate insurance and prohibits a creditor who sells or offers for sale guaranteed asset protection waivers from including certain words in the name of the business of the creditor that could indicate that the creditor is an insurer.

Asset Protection

SB 264

10/1/2015 The Uniform Fraudulent Transfer Act (UFTA) sets forth statute of limitations periods for fraudulent transfer of property to avoid an obligation or creditor’s claims. This bill specifically includes spendthrift trust provisions from the UFTA. Asset Protection

AB 137

10/1/2015 Revises provisions relating to unlicensed contractors. Makes it a misdemeanor for a licensed contractor to solicit a bid or estimate from any unlicensed person and increases fines for several new and old violations of construction license laws. Contractors

SB 50 & SB 223 & SB 254

Various Dates SB 50 changes several technical requirements regarding the regulation and licensing of contractors. SB50 also creates new limitations on eligibility to recover from the insolvent contractor residential Recovery Fund administered by the State. SB223 makes technical changes regarding liens for wages and payment of certain benefits in certain projects. SB 254 regulates the amount of retainage that may be withheld from progress payments to  contractors in public works (5%) and private works (10%) and also provides the conditions on which retainage must be paid out to the contractors. Contractors

AB 125

2/24/2015 Makes a variety of technical and substantive changes to the rules regarding residential construction defect claims. In several different ways, the new changes significantly improve the legal position of developers and contractors in these cases. Contractors – Residential Construction Defect Claims

AB 44

7/1/2015 Makes various technical changes and expands the range of opportunities to use judgments by confession in justice courts. Courts/Litigation

AB 66

10/1/15 & 1/1/17 Increases the jurisdictional limits of justice courts in Washoe County and Clark County from $10,000 to $15,000, and the small claims limit from $7,500 to $10,000. Courts/Litigation

AB 435

7/1/2015 Creates a new 11th judicial district in Nevada to cover Lander, Mineral and Pershing counties, providing better efficiency for courts in Nevada’s rural counties. Courts/Litigation

SB 134

5/30/2015 Limits the amount of a bond needed in certain cases to obtain a stay of execution (collection) on a judgment pending appeal. Courts/Litigation

SB 224

6/1/2015 Establishes elements for a conclusive presumption that a person is an independent contractor for purposes of NRS 608. Employment

AB 92

10/1/2015 Makes changes to NRS 126.720 concerning adoptions, requiring the State Registrar of Vital Statistics to show the names of intended parents (adoptive) on birth certificates upon receipt of court orders issued by district courts in Nevada approving gestational agreements for children born in the State of Nevada. Family Law – Adoption

AB 151

10/1/2015 Provides that a court can ignore age restrictions for certain family members to adopt children if it is in the best interest of the child and the public. Also changes requirements for consent to adoption by spouse: a married person must obtain consent from spouse but obligations of other spouse are limited. Imposes a six-month wait for certain adoptions. Family Law – Adoption

AB 303

7/1/2015 With respect to the protection of children in terms of abuse and termination of parental rights, this bill expands the definition of “abuse” to include whether one of the child’s caregivers has abused another child in the household as evidence that any other child in the household is in need of protection. Family Law – Child Welfare

AB 324

7/1/2015 Revises provisions mandating the reporting of missing and runaway children within 24 hours and brings certain state regulations in conformity with federal laws. Family Law – Child Welfare

AB 263

7/1/2015 The most important family law legislation for this session, making sweeping changes to NRS 125.040 regarding determinations regarding child custody. Most importantly, it recognizes that non married parents should have the same presumptive rights to share joint legal and physical custody that married parents have. The statute now also imposes the same relocation standards that apply to out of state moves to moves within the state of Nevada if the move is at such a distance within the state that it would substantially impair the ability of the other parent to maintain a meaningful relationship with the child and adds a punitive attorney’s fees provision for bad faith conduct with respect to either parent in relationship to a relocation petition. The changes to this section also now make it a category D felony to relocate with a child without the written consent of the other parent or a court order. Family Law – Custody

AB 132

7/1/2015 Increases the fee for someone who commences an action for divorce in district court from $20 to $30 and extends the fee to those commencing an action for termination of a domestic partnership. Family Law – Divorce or Separation

AB 388

7/1/2015 This statute provides for additional filing fees that can be collected in modification proceedings filed in any divorce or separation proceedings that were originally submitted as joint petitions. It allows for the county to obtain a $129 filing fee for a motion to modify or enforce and a $57 filing fee for any opposition which helps them to recoup the lost filing fees on the front end of an “uncontested” divorce or separation proceeding that later results in a contested matter. Family Law – Divorce or Separation

AB 262

7/1/2015 The new provisions designate the priority for appointment of guardians and now allow, among other things, for the appointment of a nonresident over a resident if the nonresident was nominated and qualified to serve. Family Law – Guardianship

AB 362

10/1/2015 Makes modifications regarding the procedure for filing post judgment motions in divorce or separation cases based on a party’s omission of a community property asset or liability. It now requires that such motions, based on fraud or mistake, must be filed within three years from the entry of Judgment. Family Law – Judgments

AB 58

7/1/2015 Enhances the confidentiality of juvenile justice information and provides that it is a gross misdemeanor to disseminate or make public juvenile justice information. Family Law – Juvenile Rights

AB 112

10/1/2015 Amends the state’s anti-bullying bill to include that the quality of instruction is impacted by poor attitudes or interactions among administrators, principals, teachers and other personnel of the district as well as sets forth reporting requirements for violating this new provision. Misc.- Anti-bullying

SB 504

7/1/2015 Provides procedures and guidelines for the discipline of teachers and administrators, including revoking their license for non-compliance with anti-bullying statutes. Gives parents the power to petition superintendent to compel teachers and administrators to comply with anti-bullying laws. Misc.- Anti-bullying

SB 414

Immediately Encourages the Board of Regents to enter into reciprocal agreements with the State of California to authorize waivers of nonresident tuition to certain residents of Nevada and California in the Lake Tahoe Basin. Misc.- College Tuition

AB 239

Multiple Dates Revises the definition of “aircraft” to include unmanned aerial vehicles (“drones”) for regulation purposes, allowing for the regulation of drones, including the extension of trespass and police search protections to drone use as well as prohibiting the addition of weapons to drones. Misc.- Drone Regulation

SB170

Multiple Dates Sets forth criteria and limits for the authorization of a partial abatement of property taxes and local sales and use taxes to a data center that locates or expands in this State and meets certain qualifications. Misc.- Economic Development

SB 276

Multiple Dates Reallocates the number of certified medical marijuana establishments to other counties when there are no qualified applicants in a county or there are unused certificates in a county. Revises law to allow for transfer of ownership and relocation of a medical marijuana establishment. Misc.- Medical Marijuana

SB 305

Multiple Dates Authorizes an institution of higher education or State Department of Agriculture to grow or cultivate industrial hemp for research purposes if certified with the Department. Also, it excludes industrial hemp from the definition of “marijuana.” Misc.- Medical Marijuana

SB 447

7/1/2015 Makes it a crime to forge or counterfeit a letter of approval for medical marijuana or to possess a forged or counterfeit medical marijuana card. Defines “concentrated cannabis” and prohibits its extraction. Provides guidelines for medical marijuana use and approval for children under 10 years of age. Misc.- Medical Marijuana

AB 175

Multiple Dates Provides a definition for “transportation network company” (i.e. Uber, Lyft) and sets forth the regulations and requirements for such companies which include requiring background checks and a taxation structure. Misc.- Nevada Transportation Authority

AB 176

Multiple Dates Establishes the Yellow Dot Program which alerts first responders that a person who is regularly a driver or a passenger in a vehicle has important medical information that can be found in the glove compartment in the case of an emergency or collision. Misc.- Nevada Transportation Authority

SB 401

Multiple Dates Authorizes a person to file a complaint with the Secretary of State if the person is aware of a violation of existing law governing notaries public and implements new application requirements for notaries public or those apply for registration as a document preparation service. Misc.- Notary Publics

AB 162

1/1/2016 Authorizes certain peace officers to wear recording devices and requires agencies to implement policies governing use of recording devices and retention of records. Also establishes that any record on a recording device is a public record subject to inspection. Misc.- Police Transparency

AB 88

10/1/2015 Revises the Charter of the City of Reno with various changes. Gives the City Council more power to hire and appoint temporary vacant positions as well as imposes limits on number of employees and positions City Council may employ. Misc.- Reno City Council

AB 86

7/1/2015 Makes several minor changes to the current Silver State Health Insurance Exchange (State version of Obamacare). Reduces required meetings of the board from quarterly to annually, allows for compensation if money is available and reduces restrictions on who can sit on the board. Misc.- Silver State Health Insurance Exchange

SB 2

10/1/2015 Increases the maximum speed limit in Nevada from 75 to 80 miles per hour and expands the imposition of the current limited fine of $25 for incremental speed violations up to 85 miles per hour. Misc.- Speed Limit

SB 312

7/1/2015 Imposes a surcharge to certain room rates in certain cities (i.e. Reno) to improve and maintain publicly owned facilities. Misc.- Taxation

SB 231

Multiple Dates (5/27/15 & 1/1/16) Addresses controlled substances provided for injuries, timeframes for payment of bills by insurers, and injuries when employee impaired. Misc.- Workers’ Compensation

SB 232

Multiple Dates (5/27/15 & 1/1/16) Provides for numerous changes to laws affecting procedures for handling Workers’ Compensation claims. Misc.- Workers’ Compensation

AB 192

10/1/2015 Established different time periods for a developer to turnover control of the HOA based on the number of units in the development. This bill also revises the election of unit owners to the executive board during the period of the original developer’s control. Real Property – HOA

AB 238

10/1/2015 Requires an HOA to solicit three bids for works of improvement whenever possible depending on size of HOA and amount of expected cost relative to a percentage of the annual budget. Real Property – HOA

SB 389

10/1/2015 Amends existing law (116B) pertaining to condominium hotels and adds numerous provisions, some of which are amendments recommended for UCIOA by the Uniform Law Commission (UCL). Real Property – HOA/Condominium Hotels

SB 306

Various Dates Addresses the NV Sp Ct decision in SFR Investments Pool 1 v. US Bank by amending existing elements of Super Priority HOA liens, and notices  and procedures that apply to nonjudicial foreclosure sales to enforce those liens. This a very detailed bill that amends many provisions concerning liens and sales under liens to secure amounts due HOAs. Among other provisions, it includes new or amended requirements for notices to be given to foreclose an HOA lien; requirements for place where the sale is to be held, or postponed to the same location, date and time for a maximum of three (3) postponements, and new notices required if there are more than three (3) postponements. It also allows payment of Super Priority liens prior to sale, and NEW provisions allowing for redemption after the sale under certain circumstances. The bill also provides new notices required if a property is subject to the Foreclosure Mediation Program. A close review of the amendments should be undertaken if you are involved with an HOA sale either for the association or as the owner or a potential bidder at an HOA nonjudicial sale. October 1, 2015 is a key date that affects HOA sales that are subject to these amendments.This is the much-debated legislative response to the SFR case (Sept. 2014) discussed in prior Clarity blogs, including an update on the subject. Real Property – HOA Super Priority Liens

AB 183

10/1/2015 Provides that a grantee of a deed in lieu of foreclosure is liable for damages and attorneys’ fees for failure to record the conveyancing deed. Real Property – Leasing/Lending

AB 195

7/1/2015 Clarifies the amount of deficiency judgment that may be awarded against a debtor or guarantor under NRS 40.459.  A deficiency judgment is now limited to the lesser of the difference between the amount owed and the fair market value, plus interest from the date of the sale, or the difference between the sale price and the amount of indebtedness, plus interest from the date of the sale.  If the foreclosed property is a primary residence, a deficiency judgment is further limited by the consideration paid by a purchaser of the right to obtain the judgment. Real Property – Leasing/Lending

AB 379

10/1/2015 Allows a landlord of a commercial lease to change the locks only after providing at least three days notice by certified mail of the failure to pay rent and the intent to change the locks. Real Property – Leasing/Lending

AB 386

10/1/2015 Provides landlord remedies for the eviction of persons who have forcibly entered or detained a dwelling. Real Property – Leasing/Lending

SB 239

6/1/2015 Prescribes requirements for termination or suspension of a line of credit and the recordation of the same. This bill also reduces the time period in which to file an action relating to a nonjudicial foreclosure sale and provides protections for bona fide purchasers for value at a foreclosure sale. Real Property- Leasing/Lending

AB 97

5/27/2015 Provides that a will that is delivered or presented to the clerk of a court becomes part of the permanent record maintained by the clerk of the court, whether or not a petition for probate is filed. The will now also becomes a court record open to inspection unless sealed pursuant to Part VII of the Nevada Supreme Court Rules. Trusts/Estate/Probate

AB 128

6/4/2015 Creates a power of attorney for health care decisions for adults with intellectual disabilities. Existing law provides for a statutory form for a power of attorney for health care decisions. This act provides such a form for adults with intellectual disabilities and a form for end-of-life decisions for adults with intellectual disabilities. Trusts/Estate/Probate – Guardianship

AB 130

10/1/2015 Increases the jurisdiction amount of a decedent’s estate that may be subject to summary administration from $200,000 to $300,000, after deducting encumbrances. Increases the size of a decedent’s gross estate that may be subject to transfer by affidavit from $20,000 to $100,000 for a surviving spouse, and to $25,000 for all others, excluding the value of any automobiles. Trusts/Estate/Probate

SB 384

5/27/2015 In 2009, Nevada enacted legislation to allow for family trust companies to exist without public supervision, unless the family trust company desires to be licensed. This act updates provisions of the law that apply when a family trust company chooses to be licensed. Trusts/Estate/Probate

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Nevada Supreme Court Puts Another Nail in AB273’s Coffin: Anti-Deficiency Protections

  • May 20, 2015

In my ILG Currents newsletter articles in January 2014 and April 2014, I discussed some important court decisions impacting Nevada’s 2011 Assembly Bill 273 (AB273), which expanded anti-deficiency protections available to borrowers and guarantors whose loans are secured to Nevada real estate. AB273 essentially limits a deficiency judgment after foreclosure to the amount paid for the assigned loan.  In the Sandpointe case decided in late 2013, the Nevada Supreme Court determined that AB273 was not applicable to the particular case before it, because both the loan assignment and the foreclosure sale in issue had occurred before the enactment of AB273. In Sandpointe, the Nevada Supreme Court was not required to address any difficult questions regarding the federal Constitution or federal “preemption.”

In March, 2014, Judge Robert Jones of the U.S. District Court of Nevada confronted some of the constitutional problems of AB273, head-on, in a case called Eagle SPE NV I. In short, Judge Jones determined that AB273 would be unconstitutional if it is applied retroactively to assignments of loans, which had been made before the effective date of AB273.  In other words, AB273 is unconstitutional if it is applied to prohibit a deficiency judgment on a loan assigned to the foreclosing lender before the enactment of AB273, even if the foreclosure sale is held after the effective date of AB273 in June 2011.

In a new case this past month, the Nevada Supreme Court has just ruled that AB273 cannot be applied to loans that have been assigned through the FDIC via operation of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).  FIRREA is a United States federal law through which the FDIC takes custody of a failed bank and transfers its assets to other banks. Relying on the Supremacy Clause of the United States Constitution, the Nevada Supreme Court ruled that the federal FIRREA law trumps the Nevada state anti-deficiency law. Accordingly, whenever an assignment of a failed bank’s assets is made through the FDIC, AB273 will not be applied to limit the rights of the loan’s new owner, as doing so would directly interfere with the federal statutory scheme for taking custody and liquidating failed bank assets under FIRREA.  Here is a key bit of the text from Munoz v. Branch Banking and Trust Company, Inc., Nevada Supreme Court (131 Nev. Adv. Opinion No. 23, April 30, 2015):

At issue here is whether NRS 40.459(1)(c)’s limitation on the amount  of  a  deficiency judgment  that  a  successor  creditor  can  recover conflicts with FIRREA’s purpose of facilitating the transfer of the assets of failed banks to  other  institutions.  Because  NRS  40.459(1)(c)  limits  the value that  a successor  creditor  can recover  on a deficiency judgment,  its application to assets transferred by   the Federal Deposit Insurance Corporation (FDIC) frustrates the purpose of FIRREA.  Therefore, we hold that NRS  40.459(1)(c) is preempted by FIRREA to the extent that NRS 40.459(1)(c) limits deficiency judgments that may be obtained from loans transferred by the FDIC.

So what does this mean for our clients? What clarity does this provide?

In the immediate aftermath of AB273’s enactment, from 2011 through 2013, we were successful in arguing the potential impact of this law for the benefit of clients who had been threatened with the prospect of a deficiency judgment arising from a foreclosure sale during the Great Recession. Those arguments had legs for two or three years while courts grappled with the meaning and effect of AB273.  As a result of the cases described above, including most recently Munoz, AB273 will have very limited application to loans that predated its enactment, or which were assigned before its enactment, but moving forward, AB273 will become a force to be reckoned with as new loans are made and assigned with AB273 as the underlying law of Nevada.

Federal District Court Limits Nevada Anti-Deficiency Protections (AB273)

  • May 13, 2015

This article was originally published in the April 2014 edition of Incline Law Group’s printed newsletter, Currents. 

In my last Currents column, I discussed the Nevada Supreme Court’s November, 2013, decision in Sandpointe.

Sandpointe concerned the application of Nevada’s 2011 AB273, which expanded anti-deficiency protections afforded to borrowers and guarantors whose loans are secured to Nevada real estate.

AB273 essentially limits a deficiency judgment after foreclosure to the amount paid for the assigned loan. Sandpointe determined that AB273 was not applicable in the case before it because both the loan assignment and the foreclosure sale occurred before enactment of AB273.  Sandpointe thus left the weightier constitutional issue of possible impairment of contract rights to future cases.

Within the past  month, one such case decision arrived on the scene –  Eagle SPE NV I, Inc. v. Kiley Ranch Communities, United States District Court, D. Nevada, March 24, 2014, 2014 WL 1199595 (“Eagle SPE”).  Eagle SPE  involved the assignment prior to enactment of AB 273 of four defaulted loans totaling $45 Million, with loan foreclosure sales occurring after the enactment.  Chief Judge Robert Jones of the U.S. District Court of Nevada delved headlong into the constitutional questions avoided by the Nevada Supreme Court and concluded that AB273 cannot be constitutionally applied to loans where the assignment to the foreclosing creditor occurred prior to the statute’s effective date in June, 2011. This decision is not currently binding on other Nevada courts, but it may portend the future legal landscape in Nevada. An appeal to the U.S. Ninth Circuit Court of Appeals and thereafter to the Supreme Court of the United States (“SCOTUS”) is certain to follow.

While the popular view is that laws simply cannot impair any vested contract rights, the decisions of the SCOTUS and federal appeals courts have established a much more subtle balancing test that allows some significant interference with contracts.

Judge Jones’ decision stated: “The amended statute, if retroactively applied to assignments made before the effective date, provides a windfall to a particular class (mortgagors) that could not have been reasonably expected under the mortgage and assignment when made, to the detriment of another distinct class (mortgage assignees). …”

Judge Jones concluded that parts 1 and 2 of the above test were satisfied – i.e., that AB273 indeed impairs contract rights when it is applied to a loan assignment made prior to AB273 enactment, and that there was a legitimate public purpose for the Nevada state legislature enacting the law to address a state-wide real estate crisis.

Judge Jones also concluded that any impairment of the assignee’s expectancy interest – its benefit of the bargain – cannot be limited.  He found that AB273 essentially destroys an assignee’s upside or benefit of its bargain, but completely protects the assignee’s out-of pocket losses from the contract impairment.  Judge Jones concluded this is a windfall to the borrower, and does so without discussing the particular borrower’s circumstances (rather he discusses all borrowers collectively and abstractly).  Nor does Judge Jones consider the probability that in essentially all deficiency judgment actions after foreclosure, the borrower has not enjoyed any windfall at all – it is not walking away with a pile of money in its pocket, it has no remaining interest in the property, and has probably lost its entire equity capital investment and perhaps years of sweat equity.

In this light, Judge Jones’ conclusion that every foreclosed borrower has enjoyed a windfall and is impermissibly receiving special protection is neither supported by the facts of the case nor economic reality.  Moreover, the decision fails to address the fact that a potential windfall is accruing to the party who acquired the loan at a discount, in a voluntary transaction between the foreclosing holder of the loan and the prior holder or loan originator.  The foregoing aspects of Judge Jones’ analysis may prove to be crucial in appellate litigation that is certain to follow – after all, the case concerns a deficiency of $35.7 Million.

My prediction is that the case will proceed to the U.S. Ninth Circuit Court of Appeals and eventually to the SCOTUS, and the argumentation will focus on whether AB273 in fact accords a windfall to borrowers, whether all Nevada borrowers with assigned mortgages are an improperly defined special interest group, and whether AB273’s protection of the loan assignee’s out-of-pocket losses, while entirely destroying its benefit of bargain (the right to enforce the assigned loans at face value when acquired at less than face value, when the devaluation of the collateral is already known or obvious) is permissible under the Contracts Clause.  The Ninth Circuit will make an interesting appellate forum for these issues.  If Judge Jones’ decision is upheld, it will have the effect of gutting the consideration-paid limitations imposed by AB273, in regard to all loan assignments made before AB273 took effect in June, 2011.

NV Supreme Court Addresses AB273 – Anti-deficiency Protections

  • May 13, 2015

This article was originally published in the January 2014 edition of Incline Law Group’s printed newsletter, Currents. 

In 2011 the Nevada legislature enacted Assembly Bill 273, and in doing so expanded the anti-deficiency protections available to borrowers and guarantors in Nevada.  An anti-deficiency law is one that limits the amount of money which a lender or its assignee may obtain from a borrower or guarantor in excess of the value of the real property or other collateral given to secure the loan.  Of particular importance, AB273 limits the amount that an assignee may recover through a deficiency judgment to the amount of consideration it paid for the assignment of the note and deed of trust, minus  (1) the amount paid for the property at the foreclosure sale, or (2) the fair value of the property on the date of foreclosure, whichever is greater.

Within a few months after AB 273 was enacted, trial courts in Nevada began to issue conflicting rulings regarding application of the new law.  In particular, on one day in late 2011, two different judges from the Eighth Judicial District Court in Clark County issued rulings with opposite conclusions about the effect of the law.  The two cases, Sandpointe and Nielsen, were then appealed to the Nevada Supreme Court.  Since then, attorneys and judges handling collection cases and the banking industry in general have been waiting for rulings on these cases.

In November, 2013, after a two-year wait, the Nevada Supreme Court issued its rulings in Sandpointe and Nielsen.  Depending on who you ask, there are differing opinions regarding what was decided and not decided by SandpointeThe following is this attorney’s view of the primary issues decided and not decided by Sandpointe:

First and foremost, Sandpointe determined that the AB273 anti-deficiency protections apply to any loan where the foreclosure sale (private trustee’s sale or judicial foreclosure) occurs after the effective date of the statute, which was June 10, 2011.  The court noted that a creditor’s right to a deficiency judgment vests when the foreclosure sale happens.

Some have suggested that AB273 only applies to an assignment of a right to obtain a deficiency judgment after foreclosure (i.e., a cause of action), but not to an assignment of a note and deed of trust.  In fact, Sandpointe expressly and impliedly determined that the AB273 anti-deficiency protections apply to any transfer of the right to obtain a deficiency judgment, regardless of when or how the right was transferred.

The Supreme Court also explained the practical economic effect of AB273 when it applies.  In this regard, the court stated:

Following the enactment of NRS 40.459(1)(c), a successor holder is now limited in its recovery, in a deficiency action or suit against the guarantor, to the sum by which the amount paid for the “right to obtain the judgment” exceeds the greater of the fair market value or the actual sale price. Under NRS 40.459(1)(c), no award may be made for other amounts that the successor in interest may have incurred following the acquisition of the right to obtain the judgment, such as accrued interest, costs and fees, and any advances, as provided in NRS 40.451 and NRS 40.465.

No doubt the statement that no award may be made for accrued interest, costs and fees will produce additional controversy.

The Court did not rule on the applicability of AB273 to loans transferred to a FDIC takeover.  AB273 refers to “persons” — in particular, a “person” assigning and a “person” receiving assignment.   Successor banks that hold assets received through the FDIC argue that the FDIC is not a “person” within the definition of statute and, therefore, that successor banks acquiring loans from FDIC are not limited in what they can recover.  This issue will undoubtedly be addressed in a future appellate court decision.

Sandpointe and Nielsen have answered some important questions following the enactment of the AB273.  Several crucial issues regarding this important law still remain to be decided, and will undoubtedly be the subject of future appellate decisions and/or legislative changes.

 

Update: The Not So Superpriority Lien?

  • April 6, 2015

Update on the SFR Case:  The Not So Superpriority Lien?

As discussed in a prior blog post, in September, 2014, the Nevada Supreme Court issued a ruling in SFR Investments Pool 1 v. us Bank, 130 Nev. Adv. Op. 75 (9/19/14) that held that a foreclosure sale by an HOA for unpaid assessments will wipe out a lender’s interest as a junior lien.  This has made purchasing HOA foreclosures a very attractive investment option.

But as is often the case, when things seem too good to be true, they often are.  A slew of cases have hit the Federal District Courts in Nevada which may call into question the SFR ruling if the wiped out mortgage loan was a Freddie Mac or Fannie Mae backed loan.

In September of 2008, the Feds placed the very troubled Freddie Mac and Fannie Mae into a conservatorship (under the conservatorship of the Federal Housing Finance Agency “FHFA”) for the purpose of reorganizing and rehabilitating Freddie and Fannie.  Congress granted FHFA, via Federal statutes, broad privileges and exemptions to carry out its duties as the Conservator.  These exemptions included statutory protections that provide that “[n]o property of the Agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency, nor shall any involuntary lien attach to the property of the Agency.” 12 U.S.C. § 4617(j)(3).

While no decisions have been issued as of yet, it is possible that the Federal Courts could rule that HOA foreclosure sales are invalid as against Fannie Mae and Freddie Mac backed loans.  If this is the case, then an HOA foreclosure would not wipe out a first position mortgage holder, if that loan was backed by Freddie or Fannie.  We may not know the answer for some time, but meanwhile, buyer beware!

Hyatt v. California Franchise Tax Board

  • December 2, 2014

In 1998 former California resident Gilbert Hyatt won a big trial against the tax collection arm of California, the Franchise Tax Board (FTB). After a four month long jury trial, Hyatt was awarded over $138 million in tort damages, $250 million in punitive damages and $2.5 million in costs.

Hyatt’s suit was prompted by an FTB audit of his 1991 tax return. Hyatt claimed he moved to Nevada in 1991. In 1993, the FTB started an audit and investigation because it doubted that Hyatt had actually moved in 1991. After years of investigating, the FTB determined that Hyatt had not moved to Nevada in 1991 entitling California to tax much more of Hyatt’s patent license income. After penalties and interest were assessed, the FTB claimed Hyatt owed many millions of dollars. Because the FTB challenged Hyatt’s “move” in 1991, it also challenged his “move” in an audit of his 1992 tax return resulting in many more millions of dollars found to be due to California.

The FTB appealed the jury trial findings in favor of Hyatt. On appeal the Nevada Supreme Court denied Hyatt damages for negligence by the FTB, but upheld damage awards for intentional tort. FTB’s fraud liability was upheld, for $1.8 million, as were damages for intentional infliction of emotional distress (IIED) with no limit or cap. But a new trial was warranted because of errors in the trial court and the $82 million dollar award was vacated. On retrial there is no cap to FTB’s liability and so a retrial may produce more or less damages for FTB’s bad conduct. The punitive damage award for $250 million was vacated and the Court granted California and its FTB immunity from all punitive damages on comity grounds: Nevada would also have granted immunity had Nevada been the bad actor. The trial court award of $52 million for breach of privacy was also vacated. The Court found that because Hyatt’s private information (SSN, home address and other personal identifiers) had previously been published by Hyatt and others, there was no expectation of privacy, hence no privacy damages for FTB’s sharing of that information. But, FTB’s sharing of that information was a foundational element in the award of fraud damages and IIED damages. The attorney’s fees and cost award of $2.5 million – which took a separate court proceeding and 15 months to resolve – was also vacated for recalculation once the retrial was done.

Although we root for the lowly taxpayer in his fight against the mighty tax collection arm of California, we are sure no one would want to be in Hyatt’s shoes because of the anguish and costs he was and is enduring. Even if he is ultimately successful he will have invested decades of his life and unknown amounts of money in his efforts to be vindicated for the harm inflicted upon him.

 

California_Franchise_Tax_Board

IVGID Beach Access Suit Rejected by Nevada Supreme Court

  • November 12, 2014

In 2008, two lawsuits challenging Incline Village General Improvement District’s (IVGID) policies regarding access to the District’s beaches were filed. One lawsuit was filed by Frank Wright in federal court. The other case, also filed in early 2008, was filed in a Nevada state court by Steven Kroll.

IVGID ultimately prevailed in Mr. Wright’s lawsuit, which sought access to IVGID’s beaches based on his alleged rights under the federal Constitution, citing freedom of speech, freedom of assembly and equal protection, etc. Several years ago, the federal district judge granted IVGID’s motion for summary judgment, thereby dismissing Mr. Wright’s case entirely, and the Ninth Circuit United States Court of Appeals affirmed the summary judgment in IVGID’s favor.

In the separate case filed by Mr. Kroll, IVGID initially moved the case to federal court where, eventually, a different federal district judge applied all the same reasoning that was applied to dismiss Mr. Wright’s case, and, accordingly dismissed all of Mr. Kroll’s federal constitutional claims and then returned the case back to the Second Judicial District Court (our Nevada state court in Reno), for further proceedings regarding Mr. Kroll’s state law claims.

A little more than two years ago, the state district court in Reno granted IVGID’s motion for summary judgment, disposing all state law-based claims asserted by Mr. Kroll. Thereafter, Mr. Kroll appealed to the Nevada state Supreme Court. Mr. Kroll’s appeal has been pending since October, 2012.  On Monday, November 10, 2014, 25 months after Mr. Kroll filed his appeal, our state Supreme Court entered its ORDER OF AFFIRMANCE, which you can read here by scrolling to the bottom and referencing document #14-36978The Order of Affirmance was issued by all of the court’s seven justices unanimously. It is not a published decision which means it cannot be cited as precedent in future cases, although the legal analysis and argumentation as set forth in the Order of Affirmance can certainly be used again should the need arise. The Order of Affirmance indicates the court’s unanimous and sweeping rejection of all claims asserted by Mr. Kroll under Nevada state law, including his key assertion that IVGID’s statutory authorization to acquire and manage facilities for public recreation absolutely precluded IVGID from restricting beach access to certain property owners.

With this Order of Affirmance, and after nearly seven years, the ongoing uncertainty raised by this remaining legal challenge to IVGID’s beach access policies is now gone.

Vote YES on Question 1

  • October 27, 2014

Question No. 1 on the November election ballot authorizes the creation of an intermediate appeals court in the State of Nevada. The attorneys of Incline Law Group, LLP, would like you to join us in voting YES on Question 1.

Nevada is one of only a few states that has no intermediate appellate court. Our Supreme Court consists of seven justices.  Despite a range of efficiencies and case reduction strategies, the seven justices and the whole staff of the Nevada Supreme Court are overwhelmed with new cases.  The court is burdened, at the same time, with both complex cases the outcome of which affect all Nevadans, as well as routine appeals in a wide variety of much less important cases.

If Question No. 1 is passed, an intermediate appellate court consisting of three judges would be created. This Court of Appeals would be positioned to more quickly facilitate routine appeals, freeing up the Supreme Court to focus on the state’s most important cases.

Vote Yes on Q1

Vote Yes on Q1

 

We have had cases during the past few years where our clients have waited with uncertainty over their rights while the Nevada Supreme Court was reviewing new legislation.  For example, Nevada’s 2011 AB273 was under the Supreme Court’s review for nearly two years before the Sandpointe decision came down in late 2013.  AB273 is a critically important anti-deficiency law that protects borrowers and guarantors from personal liability after a foreclosure sale.  Thousands of foreclosed homeowners’ liability hung in the balance while the case was under review.  As a result of this delay, an entire legislative session was missed in 2013 during which AB273 might have been clarified had the Supreme Court’s decision in Sandpointe come sooner.

A few weeks ago, the Nevada Supreme Court issued another decision which likewise underscores the need for a YES vote on Question 1.  In a 4 to 3 decision, the Supreme Court decided a significant homeowners’ association (HOA) super-priority lien case (SFR Investments Pool 1 v. US Bank). The Supreme Court ruled that a non-judicial foreclosure of an HOA lien for unpaid assessments wipes out a first mortgage holder. The end result is that a buyer at an HOA foreclosure sale may acquire the property free and clear of prior first loans.

This is an economic windfall for investors who purchase property at HOA lien sales and pay a modest sum (perhaps as low as a few thousand dollars) at the HOA sale. It is a huge defeat for lenders – in this case US Bank’s first loan of almost $900,000 was entirely wiped out by the HOA sale.  This raises the question of whether lenders will be willing to lend on HOA properties in Nevada given this uncertainty.  SFR Investments could lead to a requirement that HOA dues must be impounded like taxes and insurance or to a change in practice where a lender will pay off the HOA and never allow such a lien to go to sale. We expect that this will be a significant issue when the legislature meets again in 2015. The inequity of this result could be corrected by changing only a few words in the statute that creates the super-priority HOA lien.

In the SFR Investments case just described, the appeal was first filed in April, 2013 — seventeen months before it was eventually decided, during the 2013 legislative session. The case is of extreme importance to thousands of owners of units located in Nevada HOAs and their lenders. If Nevada had an intermediate appellate court to handle the routine appeals, this is a case that the Supreme Court might have decided much sooner, which would have provided greater clarity to all interested parties much earlier.

Allowing our state Supreme Court to focus on these extremely significant appellate cases in a more expeditious manner is a strong reason to vote YES on Question 1 in the upcoming election.  We hope you will join us in doing so.

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