The U.S. Court of Appeals for the Ninth Circuit recently affirmed the dismissal of claims brought by borrowers on a residential mortgage loan alleging contractual and tortious breaches of the implied covenant of good faith and fair dealing against the loan’s owner, trustee and servicer for purported failure to adequately participate in the state’s foreclosure mediation program.
In so ruling, the Ninth Circuit held that the applicable state statute and Nevada Supreme Court’s foreclosure mediation rules requirements that parties file requests for judicial review within 10 days of the mediator’s final statement provide the exclusive judicial remedy to challenge any mediation-related conduct, and cannot be evaded by the filing of a separate action.
A copy of the opinion in Tobler v. Sables, LLC is available at: Link to Opinion.
After husband and wife borrowers fell behind on their mortgage payments, they invoked their rights to seek a loan modification with their mortgage lender under Nevada’s foreclosure mediation program. Homeowners trigger the mediation program by filing a petition in state court which prevents lenders from foreclosure while pending. Nev. Rev. Stat. 107.086(3).
The borrowers attempted mediation with their lender on three occasions between September 2014 and July 2018, but were ultimately unsuccessful. On July 24, 2018, after the third mediation had failed, the mediator filed a report with the state court recommending that the borrowers’ mediation petition be dismissed. After the borrowers failed to timely request relief to avoid dismissal within 10 days, as required, the mediation petition was dismissed on Aug. 22, 2018. The borrowers did not appeal the dismissal, and on Oct. 18, 2018, the appointed trustee on the deed of trust served the borrowers with a Notice of Trustee’s Sale.
On Nov. 1, 2018, the borrowers filed a petition for judicial review of the failed July 2018 mediation, which was stricken in state court as untimely. On the same date, the borrowers filed this action in state court against the owner of the loan, trustee on the deed of trust and loan servicer (collectively, “mortgagees”) alleging that the mortgagees acted in bad faith in the mediation process in breach of their contractual and tort-based duties arising from the implied covenant of good faith and fair dealing.
The mortgagees removed the action to federal court based on diversity jurisdiction and moved to dismiss the complaint for failure to state a claim. After the mortgagees’ motion to dismiss was granted, this appeal followed.
Noting that it had not yet been addressed by the Nevada Supreme Court in a precedential decision, the Ninth Circuit stated that the issue on appeal was whether a request for judicial relief under Nevada’s Foreclosure Mediation Rules is the exclusive remedy under Nevada law for challenging a lender’s conduct in the foreclosure mediation process.
The Appellate Court initially reviewed the parties’ obligations under the Nevada foreclosure mediation program as codified in section 107.086, wherein the mediator is tasked with determining whether the parties complied with their requirements to participate in good faith if the mediation fails. Nev. Rev. Stat. §§ 107.086(6), (8).
If the mediator determines that the parties acted in good faith and no sanctions are warranted against the lender, it must submit a recommendation to the state court to dismiss the mediation petition. Id. While the statute contemplates that the parties will be afforded an opportunity to respond to the mediator’s recommendation before the state court issues its order, it leaves those details to the rules promulgated by the Nevada Supreme Court under Section 107.086(12).
Those rules provide that “[f]ollowing submission of the mediator’s statement, within 10 days, either party may submit a request for appropriate relief” to the state court. Nev. F.M.R. 20(2). The state court must then issue an appropriate order either granting an agreed-upon loan modification, dismissing the petition, or sanctioning the lender. Id. 20(3). If the mediation petition is dismissed, a certificate is subsequently issued that (if there is no other legal obstacle) allows the lender to proceed with the foreclosure. Nev. Rev. Stat. § 107.086(8).
Because these applicable judicial review provisions establish an “expedited” proceeding “to challenge compliance with the statutory attendance, production and good faith requirements” of the mediation program (Holt v. Regional Trustee Servs. Corp., 266 P.3d 602, 606–07 (Nev. 2011) (en banc)), the Nevada Supreme Court has stated that an immediate request “for judicial review is the exclusive remedy for a homeowner seeking to enforce an agreement reached in the mediation program.” Surgeoner- Jernigan v. CitiMortgage, Inc., 2012 WL 5857293, at *1 (Nev. Nov. 16, 2012) (unpublished “order of affirmance”) (emphasis added).
Accordingly, the Nevada Supreme Court has held that the Foreclosure Mediation Rules “necessitate strict compliance’” with the applicable deadline for seeking such judicial review, (Nationstar Mortg., LLC v. Rodriguez, 375 P.3d 1027, 1028 (Nev. 2016) (en banc) (internal citation omitted), and underscored the exclusive nature of that remedy by rejecting “a second proceeding before a different district court judge.” Holt, 266 P.3d at 608.
The Ninth Circuit concluded that Nevada law does not permit parties to evade the foreclosure mediation program’s exclusive remedy to request judicial review within the applicable 10-day period under Nevada F.M.R. 20(2) by repackaging claims concerning the adequacy of the mediation process as state common-law claims, as the borrowers did here. Republican Attorneys Gen. Ass’n v. Las Vegas Metro. Police Dep’t, 458 P.3d 328, 332 (Nev. 2020) (“‘Where a statute gives a new right and prescribes a particular remedy, such remedy must be strictly pursued, and is exclusive of any other.’” (citation omitted)); accord Richardson Constr., Inc. v. Clark County Sch. Dist., 156 P.3d 21, 23 (Nev. 2007) (“[W]hen a statute provides an express remedy, courts should be cautious about reading additional remedies into the statute.”).
Accordingly, because the borrowers failed to raise their claims in a timely request for review under the Foreclosure Mediation Rules, dismissal of the borrowers’ complaint for failure to state a cause of action was affirmed.