Diagnosis: Predatory Lending
Much has been said and written about abuses in the Mortgage and Escrow industries here in Nevada and elsewhere. In an effort to police these professionals, Nevada’s legislature passed laws governing their actions. This article summarizes these changes in Nevada law.
Any person who engages in the escrow, mortgage broker agent, or mortgage banker businesses without a license does so at his own peril. Nevada law requires that any contract with an unlicensed person in those businesses may be voided. In other words, the person dealing with the unlicensed mortgage agent may unwind the contract such that the law will place the parties in the position they would have been in had they never had the contract.
The Commissioner of Mortgage Lending may also require “escrow agents, escrow agencies, mortgage brokers, mortgage agents, and mortgage bankers” to pay restitution to any person who has suffered an economic loss as a result of a violation of law by an escrow agent or agency. The law authorizes a $50,000 administrative fine for persons engaging in the escrow business or the business of mortgage broker agent or banker without a license. Further, a person who engages in any of these businesses is subject to a civil action for actual and consequential damages for harm caused, as well as for punitive damages and attorney fees.
Mortgage brokers must now deposit a $50,000 bond naming as principals the mortgage broker and all mortgage agents employed by or associated with the mortgage broker for the principal office and an additional $25,000 for each additional office (not to exceed a total of $75,000). Any person claiming against the bond may file civil action on the bond for damages within three years of the harmful act. The bonding company may bring an action for interpleader against all claimants. All claims against the bond will have equal priority and will be paid on a pro rata basis if the bond is insufficient to pay all claims.
New Fiduciary Duties
By statute, all those who are licensed as escrow agencies, escrow agents, mortgage brokers, mortgage agents, and mortgage bankers now have a fiduciary obligation to their clients. This law does not impose a requirement to offer or obtain access to loan product or services for a client other than those that are offered at the time of the transaction. The law defines the “fiduciary obligation” as “a duty of good faith and fair dealing,” including, without limitation, the duty to”: 1) act in the client’s best interest; 2) conduct only mortgage transactions which are suitable for the client’s needs; 3) disclose any financial business or professional interest the licensee has in conducting the transaction; 4) disclose any material fact that the person knows or should know may affect the client’s rights; 5) provide any accounting to the client which lists all money and property received from the client; 6) not accept or collect any fee rendered unless the fee was disclosed; and 7) exercise reasonable care in performing all other duties related to a mortgage transaction.
Nevada law prohibits the disbursement of money held in escrow accounts until deposits that are at least equal to the disbursements have been received. It also prohibits disbursements on the same business day as the funds are deposited unless deposits are made in forms which allow for immediate withdrawal of money.