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October 25, 2014

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Memo from Carson City:

Beware of unintended consequences as Legislature begins work

Sun coverage

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.

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  1. Our state and nation has suffered a great economic crisis in 2008, and very little has been done to fix the problems or the people that contributed to it happening.

    Because of this economic crisis, it would make sense to have the Nevada State Legislature meet every year until such a time that the state is fully recovered.

    This action alone, will quell most, if not all, "unintended consequences" brought on by time-pressed Lawmakers.

    Blessings and Peace,
    Star

  2. "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. . . . .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. . . .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."

    Schwartz -- giving you the benefit of the doubt, our AG's snotty remark shows how profoundly ignorant she is of the centuries-old law of notes preserved in our current laws. If one applies that law properly one may refuse to pay without dishonor -- the same as any bank refusing to cash a check for one's failure to provide appropriate ID.

    Worse is this AG's use of that $57.4 million award for bank robo-signing abuse. With this legislature's blessing, her idea of justice for those wrongfully foreclosed is to offer the equivalent of one month's rent on a decent apartment. Not a penny toward helping them get their homes back. Given this state's 5-year of statute of limitations for recovering one's real property, there's time for going back to 2008 to correct those thefts.

    "Our state and nation has suffered a great economic crisis in 2008, and very little has been done to fix the problems or the people that contributed to it happening."

    star -- what you said!

    "The regulators got bailed out, the middle class lose their jobs and their houses. All this desire to trust in the government to make sure that big corporations won't hurt them actually is a backfire on them." -- Rep. Ron Paul to Jon Stewart 9/26/11, citing the example of the real estate crash as example of government regulation gone bad

  3. Wasn't that mortgage foreclosure bill a real bummer? The idea! Requiring that banks prove they actually OWN a mortgage before they can foreclose on it!

  4. Excellent article. We get too much legislative tinkering with things best LEFT ALONE.

  5. Killer is onto something re the settlement money. Parallels the travesty of using tobacco settlement money intended for lung/health care for those of us suffering from long term exposure to smokers--given to millenium students--more kids in "higher ed" who can't even read and write decently. What a waste.

  6. "Killer is onto something re the settlement money."

    Roslenda -- it's all been here, I think last September. I have a copy of the actual settlement agreement. One of the disturbing parts was the mandate to use if to "avoid preventable foreclosures." The legal definition of "avoid" is "To render void." A fall 2011 press release from our AG was to the effect tens of thousands of fraudulent foreclosure documents had been filed with this county's recorder. Instead of reversing those foreclosures, our AG has instead used the bulk of that money -- $33 million -- to set up a hotline to introduce current distressed homeowners right back to the banks behind taking their homes. Of the three partners for that only one strikes me as having any legitimacy at all, Legal Aid. One of the others was Rep. Horsford's own non-profit.

    The score: Nevada government & its parasites: 57 million. Approximately 67,000 foreclosed homeowners: some who jump through the AG's hoops get roughly $800 each for losing their homes, no other options offered.

    "If you're going to take my house away from me, you better own the note." -- Joe Lents (who hasn't made a payment on his $1.5 million mortgage since 2002) in Bloomberg's 2/22/08 "Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish"