Beware of unintended consequences as Legislature begins work

By David McGrath Schwartz

Sunday, Feb. 10, 2013 | 2 a.m.

Some months after Nevada legislators have packed up and gone home, there will almost assuredly be an “oh no” moment, though someone likely will use an actual expletive.

A bill, the state’s residents will discover, will do something that lawmakers never intended.

The Nevada Legislature is the land of “unintended consequences” — the term used for the effects of bills that aren’t anticipated.

The best example from last session is a mortgage foreclosure bill, Assembly Bill 284.

Its intent was to crack down on “robo-signings” of mortgage documents, to prevent fraudulent paperwork and keep a bank from wrongfully taking someone’s home.

The unintended consequence: It caused a dramatic drop in foreclosures in Nevada when it went into effect in October 2011.

In August 2011, banks issued 5,350 foreclosure notices in the state, according to the Nevada Foreclosure Mediation Program. In September, there were 4,684 “notices of default.”

In October 2011, when the law went into effect, the number dropped to 80.

On the surface, stopping foreclosures is great. But banking lobbyists and housing experts say it has created another problem — people staying in their homes without paying the mortgage and with no intention of doing so. These so-called “strategic squatters” are potentially creating another housing bubble and slowing the Nevada housing market’s recovery, analysts said.

With the launch of the 77th Legislative Session last week, the possibility for unintended consequences looms large once again.

There are the distractions surrounding Assemblyman Steven Brooks and surprise amendments being offered on how local governments split tax revenue. The Nevada Supreme Court’s ruling on the margins tax put another piece of complicated policy into play that will have to be dissected by lawmakers, eating up their time.

And the potential for “bad” legislation becoming the law of the land is particularly acute in Nevada, where laws can only be passed — or corrected — every other year in a 120-day time frame, unless the governor calls a special session.

Back in 2005, a bill to grant tax breaks to developers of environmentally friendly buildings passed at the last minute, creating a huge tax windfall unanticipated by lawmakers for casinos and other large developers.

That had to be fixed by lawmakers in 2007, but the state was still out millions of dollars in tax breaks.

Bill Uffelman, head of the Nevada Bankers Association, said that unintended consequences are always a danger.

“There are a lot of moving cogs there at the end of session,” he said. “Sometimes the cogs mesh and sometimes they don’t.”

Democratic lawmakers have said that in 2011, AB284 was opposed by banking representatives who did not raise the specter that it would cause such a dramatic problem for the banks. Instead of working with the lawmakers to craft a better bill, the banks simply fought any efforts to pass a law addressing potential wrongful foreclosures.

(Uffelman said there were conversations and testimonies between banks and advocates for the legislation.)

Lawmakers and lobbyists say that all parties working on complicated policy issues together can create a better process. Attorney General Catherine Cortez Masto, a Democrat who advocated for the legislation, has said that she never intended for the bill to allow homeowners not making their payments to stay in their homes.

So in this interim, she created a working group of lawmakers, bank and real estate industry representatives to figure out a fix together.

The new bill, to be carried by Assemblyman Jason Frierson, D-Las Vegas, is expected to be introduced in the coming weeks. A bipartisan group including Sen. Kelvin Atkinson, D-North Las Vegas, and Senate Minority Leader Michael Roberson, R-Henderson, and Assembly Minority Leader Pat Hickey, R-Reno, are crafting it.

The hope is, with all sides of the debate on board, there won’t be any unintended consequences this time.