Foreclosure bill aims to protect state homeowners from lawsuits

CARSON CITY -- A proposal in the state Legislature would allow Nevadans to walk away from their houses after a foreclosure or short sale without getting sued to repay the balance owed, even if they refinanced the property to buy cars, pay off credit cards, send kids to college or otherwise spend their home equity.

Under Senate Bill 346, discussed Tuesday in a Senate Judiciary Committee hearing, loans could be retroactively modified so more borrowers living in single-family homes would be protected from deficiency judgments that keep them liable for what's owed on a mortgage, even after a lender takes the property.

Current law provides similar protections, but SB346 knocks out some of the restrictions. The bill would require homeowners to meet just two criteria to be eligible: the home must be a single-family dwelling, and it must be the debtor's primary residence.

The bill would eliminate other requirements to avoid a deficiency judgment, including that the mortgage was solely used to purchase the property, that it wasn't refinanced and that it is held by a financial institution.

The retroactive clause makes the proposal stand apart from other foreclosure legislation considered this session. It is also what makes it contentious.

Opponents argued SB346 would trigger a "reverse land rush," in which borrowers would walk away from their homes without debt. They also said it would cause property values to plummet further and drag down the values of the houses surrounding them.

Assemblyman Tick Segerblom, D-Las Vegas, told the committee that the only way to deal with the housing crisis is to deal with current mortgages instead of legislating future ones. He also dismissed concerns that SB346 would have a significant impact on housing prices, telling The Associated Press, "The reality is, how much lower can you get?"

Segerblom said SB346 would give customers leverage against banks and would allow borrowers to tell banks "you got me into this." He acknowledged that the bill would have financial repercussions but told the committee, "if it's a choice between the bank suffering or the homeowner suffering, I'd rather it be the bank."

His remark didn't sit well with everyone in the room. State Sen. Michael Roberson, R-Las Vegas, responded, "What happened to the concept of personal responsibility?"

But the bigger, larger issue among both supporters and detractors was the bill's backward-looking approach.

George Ross, whose clients include Bank of America Corp., said SB346 would work against Nevada's larger goal -- bringing in outside investors -- by showing that contracts in Nevada aren't binding. Ross said the retroactive clause is the only reason Bank of America opposes the measure, which he called a "dangerous, pernicious bill."

Ross said the bill amounts to a sort of discrimination because it tells investors "we are going to change the rules of the game to favor Nevadans."

No action was taken on the bill.