CARSON CITY — The constitutionality of Nevada’s Foreclosure Mediation Program is once again being challenged in court — with lawyers this time arguing that the program violates not only the state’s basic charter, but also the U.S. Constitution.
Wells Fargo is appealing to the Nevada Supreme Court an order from the state’s Second District Court rewriting several terms of a defaulting homeowner’s mortgage. Attorneys from Snell & Wilmer, representing the bank, argue that Nevada’s program violates the Takings, Contract and Due Process Clauses of the U.S. Constitution, as well as Article III of the Nevada Constitution, the separation-of-powers clause.
“The Foreclosure Mediation Program authorizes the taking of private property — including the real property that is the collateral underlying home mortgage loans — for public use, and thus violates the Takings Clause of both the United States and Nevada constitutions,” Wells Fargo’s legal team wrote in its appeal.
The program also violates the state Supreme Court’s own rulings regarding Nevada’s eminent-domain statutes, according to the appeal’s opening brief:
It could not be clearer the Foreclosure Mediation Program is a per se regulatory taking that violates both Constitutions. This Court explained in Sisolak that “a per se regulatory taking occurs when a public agency seeking to acquire property for a public use enumerated in NRS 37.010 fails to follow the procedures set forth in NRS Chapter 37, Nevada’s statutory provision on eminent domain, and appropriates or permanently invades private property for public use without first paying just compensation.” 122 Nev. At 670, 137 P.3d at 1127. That is exactly what the Foreclosure Mediation Program does.
In addition, the program violates Nevada’s separation-of-powers clause by “blurring the lines” between the branches of government, says the brief.
“As this Court has explained, the separation of powers is complete, and it is crucial,” it continues. “It does not admit of minor exceptions in which the judiciary exercises a bit of executive power, any more than one can be a little pregnant.”
In August, Second District Court Judge Patrick Flanagan ruled the mediation program constitutional in a case brought by Deutsche Bank. To do so, however, Flanagan had to repudiate his own previous ruling that the program was an administrative agency and belonged under the executive branch.
Although no date has been set for the Supreme Court to hear the appeal, the Court’s own ethical canons could force it off the case.
Numerous legal observers have noted that, because the Supreme Court itself administers the mediation program, ruling upon its constitutionality would present a clear conflict of interest.
Moreover, given the appeal’s claim that the program violates the U.S. Constitution, the case could also ultimately make its way to the U.S. Supreme Court.
Wells Fargo “raises some legitimate and serious constitutional issues” in the appeal, said Joseph Becker, director of NPRI’s Center for Justice and Constitutional Litigation.
This is true, he observed, even though banks “are not terribly sympathetic clients,” having “allowed themselves to be co-opted by government through bailouts and other regulatory acquiescence.”
Wells Fargo received $25 billion in federal funds from the 2008 Troubled Asset Relief Program (TARP), but repaid the government in late 2009 — along with $1.4 billion in dividends reported on the “government’s investment.”
The bank has also supported bailout proponents such as Senate Majority Leader Harry Reid and current Assembly Speaker and announced congressional candidate John Oceguera.
Oceguera, along with then-speaker Barbara Buckley, was a joint sponsor in 2009 of AB 149, the state legislation that created the Foreclosure Mediation Program.
According to former foreclosure mediator Keith Tierney, the biggest issue that both Wells Fargo and the state Supreme Court may encounter is their apparent conflicts of interest in regard to the mediation program.
“You’ve got the [state Supreme] Court paying a firm to represent the program against homeowners, and a bank that’s paid the same firm to attack the Court. It’s a clear contradiction,” said Tierney.
Wells Fargo is a former client of the law firm Fennemore Craig — the same law firm used by the Foreclosure Mediation Program.
Tierney said he thinks the mediation program is constitutional and “well-intentioned” but has been poorly administered.
“This program was intended to help homeowners, but if a bank fails to act in good faith during the mediation, the program’s punishments don’t cut it,” Tierney said. “You end up with a lot of apprehensive judges and a program that doesn’t quite live up to its expectations.”
In Becker’s view, the separation of powers and “legislative malfeasance” are the major issues of the case.
“Making matters decidedly worse and violating the all-important ‘separation of powers’ clause in the process was the Legislature’s imposition of an unconstitutional duty to execute this constitutionally infirm mischief upon the judicial branch,” said Becker in an e-mail.
The courts’ “proper role is to adjudicate actual cases or controversies between real parties and not those invented or conjured up through legislative malfeasance,” he wrote.
Attorney Carole Pope represents the respondents in the appeal, Duke and Tina Renslow, of Reno. Although Pope has 30 days to file a response, she indicated to Nevada Journal she may ask for an extension.
Her formal response, she said, should be submitted to the court by early December.