Nevada’s Legal Environment Has Seen Many Changes As a Result of the Economy
By Brooke Borg

Over the past few years, attorneys in southern Nevada have had to take a “sink or swim” approach to doing business in the new economy. Whether you are a sole practitioner or part of a large firm, you have undoubtedly seen changes in the way law is practiced here in southern Nevada. The changes in the economy have made finding new, inventive ways to practice law a challenge for Nevada attorneys. Whether they have done so by broadening their scope of practice, offering more attractive billing structures or partnering with other professionals—such as real estate brokers—to offer services they wouldn’t have ordinarily offered, attorneys are finding ways to survive this economic change.

Attorneys broadening their scope of services
Several attorneys who would usually only practice in one or two areas of law have seen a need to broaden their scope of practice. Whether they were personal injury attorneys who have taken on bankruptcy and loan modifications, or transactional attorneys who now find themselves as litigators, attorneys have taken on different areas of law in an attempt to increase revenue. Although Nevada doesn’t certify attorneys as “specialists” in one area of law or another, attorneys broadening their scope should beware. Practicing in different areas of law also means you must be well versed in that area or risk the threat of malpractice claims. The public should also beware of hiring an attorney who claims to “specialize” or practice in a variety of different areas. Although large firms often have several attorneys working in all areas of the law, smaller firms and solo practitioners who claim to practice in a number of areas of law should be hired with a more careful eye.

Attorneys offering different fee structures
Along with broadening their practice areas, we have also seen attorneys offering different fee structures in an attempt to either gain new clientele or keep those they have. In these tough economic times, clients are often looking for a constant. In the realm of legal services, that constant is oftentimes the price clients will pay for various legal services. In the past, most attorneys charged hourly fees for their services. Now, clients are scared of the unknown extent of the billable hour. I have found in my practice that clients appreciate a flat fee billing structure. This flat fee structure removes the guess work and worry, which oftentimes is the paralyzing fear that causes those in need of legal services to skip hiring an attorney in the first place. If flat fees are offered to a client up front, they are less likely to question the bill when it arrives and furthermore, are less likely to refrain from using an attorney because of the fear of the unknown.

Public use of attorneys has decreased
I have found in my practice—and several of my colleges have found the same—that clients are reluctant to hire attorneys because of the client’s fear of what the attorney will charge. This follows from the paragraph above. Now, how do you solve that fear? I have found that talking to clients about making payments toward their accounts, and even informing them of the potential consequences of not hiring an attorney for their legal needs, educates them enough to make them realize they need an attorney; they just have to find the right one. Most of the time, this means finding an attorney they feel is knowledgeable enough to take on their case and one that is approachable and willing to work with them to make representation affordable to them. Everyone knows a non-attorney who has tried to cut corners and taken on legal work themselves, whether that means representing themselves in a lawsuit, reviewing their own purchase agreement, or drafting their own estate plan. As an attorney, I always give my client that option if they are concerned with price; however, at the same time, I inform them of the time it will take along with the fact that most of the time when clients undertake this responsibility they end up hiring an attorney anyway to “fix” what they started. If a client is reluctant to hire an attorney for legal services, a discussion about the potential outcome and cost savings of hiring an attorney often changes his/her mind.

Other professionals partnering with attorneys to provide legal services
The decline in the housing market in Nevada has led many attorneys to assist clients with short sales and foreclosures. Banks oftentimes recommend hiring an attorney to guide homeowners through this process, but an attorney usually isn’t enough. Now, attorneys are partnering with real estate agents and brokers to assist in representing clients who are facing short sales or foreclosures. This goes back to attorneys practicing in areas of the law they wouldn’t normally practice. Five years ago you would be hard pressed to find an attorney who assisted clients in short sales. Now, several attorneys advertise these services. Attorneys who have moved in this direction should make sure they know the person with whom they are partnering. A few suggestions for delving into this arena:

Find out whether the individual is properly licensed to handle a specific matter.
Make sure the individual is a good fit for your clients. Remember, when you refer a client to someone or bring someone else in to work with a client, your reputation and name are at stake. Don’t be so focused on revenue that you neglect protecting your reputation. Remember that fee splitting with non-licensed attorneys is prohibited by the Nevada Rules of Professional Conduct, which can be found at www.leg.state.nv.us. Therefore, emphasis should be placed on payment in a way that does not violate these rules.

There is no doubt the changing economic climate has affected the way attorneys in Nevada practice law. The above points are only some of the many ways the practice of law has changed over the past few years. As attorneys, we not only have to reinvent ourselves to keep on top of the game, but at the same time, we must be cautious so as not to violate the very standards on which our profession rests.

Brooke Borg serves as founder/attorney for Borg Law Group. Borg, who established Borg Law Group in 2010, practices in real estate, corporate, estate planning and probate. Borg earned her law degree from the William S. Boyd School of Law in Las Vegas and has nearly 10 years of experience in her field.

How the Recession Has Affected Banking Law and the Financial Industry
By Matthew D. Saltzman

Today’s economic crisis can be seen as a final chapter in the evolution of mortgage lending. Once upon a time, home mortgage loans were made by local community bankers, such as the one played by Jimmy Stewart in the movie It’s a Wonderful Life. Over time, community banks ceded the residential loan business to lenders with larger marketing budgets and economies of scale, such as large national banks and specialized mortgage lending companies like Countrywide. Wall Street firms like Bear Stearns and Lehman Brothers joined government-sponsored agencies to package and securitize loans, acting as wholesale lenders to retail mortgage brokers. Non-traditional mortgage products, such as sub-prime mortgages and loan payment alternatives that promoted easy access to home purchases, contributed to the creation of the real estate bubble and inevitably the “Great Recession.” While not actively involved in making problem residential loans, Nevada community banks have been caught up in a tsunami of bank failures and the collapse of real estate prices.

Community banks are smaller than mega banks and are typically chartered by state regulators rather than federal regulators. These smaller community banks focus on making loans to small and medium-sized businesses, including loans to develop smaller commercial centers, offices, and industrial buildings. Consumers, devastated by declines in their home values, dramatically reduced their spending, leading to business cutbacks, unemployment, and commercial real estate market turmoil. Community banks with large numbers of loans secured by commercial real estate collateral failed in significant numbers, and survivors are now struggling to raise additional capital.

The new federal banking law
Seeking to prevent the reoccurrence of the current financial crisis, Congress passed, and President Obama signed into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act). At 2,300 pages, this sweeping legislation significantly impacts the banking industry by requiring various federal regulatory agencies to promulgate approximately 250 new rules and conduct over 65 “studies” that can result in additional rule making. While many of its provisions only affect banks with more than $10 billion in assets, excluding most community banks, the Act still affects community banks in many ways.

The most significant provision of the Act is the establishment of the Consumer Financial Protection Bureau (CFPB), a new independent executive agency within the Federal Reserve system. The CFPB will take over most of the consumer protection functions currently overseen by federal agencies enforcing the existing Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Debt Collection Practices Act, and Fair Credit Reporting Act.

The Act requires smaller community banks to follow new consumer lending rules that could affect the availability of consumer credit. Also as a result of the Act, banks will now be able to pay interest on business deposits. For community banks, this change could increase costs, further narrow net interest margins, and add an element of rate competition for commercial deposits. Many community banks secure business loans with residential property. Any loan secured by liens on residential property may now be subject to the Act’s new mortgage standards. These new rules, generally speaking, require the bank to ensure and document that the borrower has the capacity to repay the loan. It is unclear whether these new rules will have a chilling effect on the ability of the business borrower to pledge residential real estate as collateral for business loans. One provision of the Act that has attracted little attention or political opposition, but which could have a significant impact on Nevada community banks, is the removal of the restrictions on interstate branching contained in the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act (Riegle-Neal). Under Riegle-Neal, banks have been limited in their ability to establish branches outside of their home states without acquiring a whole institution. The Act removes these restrictions, allowing national and state banks to establish branches in any state if a state-chartered bank would be permitted to establish the branch. This could create opportunities for Nevada community banks to expand into other states, but also increases competition from institutions entering Nevada.

The Act also addresses obstacles states encountered in enforcing unfair lending laws against national banks. Conflict developed between federal and state regulators as to whether the state had jurisdiction over the lending practices of national banks. In a victory for state attorneys general, the Act halted the expansion of federal preemption for national banks and federal thrifts, and enhanced the role of states in the regulation of consumer financial laws. States may now have greater flexibility to take more aggressive actions to enforce state consumer laws against federally-chartered banks.

Yet, little in the Act addresses community banks’ critical need for capital and relief from certain accounting rules that further diminish a community bank’s capital position. The future of community banks is uncertain, which should be of concern since community banks enjoy long partnerships with the communities they serve. Community banks want to support local businesses and homeowners with responsible loans and deposit products. In fact, community banks are considered much more effective evaluators of the creditworthiness of borrowers compared to impersonal mega banks that design broad lending policies and procedures far away from the locations where transactions actually take place.

The future of foreclosures
Nevada had a non-judicial foreclosure process that, until recently, was quite streamlined and allowed for lenders to foreclose and obtain title to residential real estate collateral at a fast pace. This fast-paced process appears to be in the process of slowing.

Significant changes have occurred to Nevada’s residential mortgage foreclosure process in light of the overwhelming increase in foreclosures. Nevada’s (hitherto) fast and streamlined foreclosure process could be attributed to the fact that it was developed after the Great Depression, during years of relative prosperity and home value appreciation. Other states with large populations during the Great Depression enacted laws to give homeowners certain rights that often allowed them to delay foreclosures or avoid the imposition of a deficiency judgment based on procedural issues. During this current economic crisis, the outcry from homeowners in Nevada facing foreclosure resulted in legislation that affords additional rights to homeowners to engage in mediation in an attempt to inspire the mortgage lender to modify the terms of the mortgage rather than foreclose.

Recently, it has been reported that the overwhelming volume of foreclosure activity has caused some financial institutions to cut corners and improperly document foreclosure papers, resulting in procedural defects that could affect the validity of the title to the homes held by banks or third-party purchasers. Several banks recently implemented moratoriums on foreclosures while they figure out what went wrong and how to change procedures going forward. Litigation across the country has commenced against mortgage lenders for faulty and possibly fraudulent paperwork, including “robo signing” of documents, which some believe may violate Nevada’s deceptive trade practices laws. Numerous state attorneys general, including Nevada’s, called on residential lenders to temporarily postpone foreclosures until it can be demonstrated that the lenders have fully complied with the state’s laws. Assuming that foreclosure transactions have occurred with improper paperwork or procedures, it is possible that the titles to homes that have been conveyed through the foreclosure process to buyers may have a clouded title. This may increase litigation by homeowners who have lost their homes through the foreclosure process on procedural grounds.

Perhaps the hardest that would be hit by these claims are title insurance companies that insure the current owner’s title. These title insurers could be inundated with claims and may abstain from insuring title for homes conveyed through the foreclosure process. Another related possibility is that homes currently owned by banks as a result of foreclosure may be held off the market until paperwork deficiencies can be remedied. Such a delay, if widespread, could cause serious distortions in the residential real estate market.

We are past the beginning of the Great Recession’s devastation of banks and financial institutions, but not necessarily close to the end. The ultimate effect of the recession and the changes in banking laws that it has spurred cannot be fully predicted. The creation of a large consumer regulatory agency could dramatically change the way consumer lending is conducted in the United States. It is likely that the foreclosure process in Nevada and other states will be materially different in the future as a result of the surge of foreclosure actions and problems with recalcitrant lenders. These changes to the legal framework of the banking industry will undoubtedly impact the viability of small community banks and the types of products and services offered. The question remains whether the medicine will help the patient or hurt it.

Matthew D. Saltzman is a shareholder at Kolesar & Leatham, Chtd. He represents community banks and other financial institutions in Nevada.