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Aug
24

NV Law Change October 1 Restricts Deficiency Judgments on Foreclosed Homes

By Kathryn Bovard

Robert Noggle,  attorney with Black Lobello law firm,  explains the new Nevada Deficiency Law that takes effect on October 1, 2009 in this guest contributor post.

“Change to Nevada Law prohibits deficiency judgments for loans made after October 1, 2009 to purchase primary residences.”

Nevada currently provides for the right of a foreclosing lender on real estate to pursue a deficiency judgment against the borrower on any type of property including a primary residence.  Nevada is known as a full recourse state.  The law provides for a six month period following the trustee’s sale in which the lender may file an action against the borrower to recover amounts owing.

NV_Law_Deficiency_JudgmentsEffective October 1, 2009, Nevada becomes a limited recourse state similar to California.  Loans made after October 1, 2009; by a financial institution to a borrower who continuously occupies the property as a primary residence are nonrecourse.  This means that the lender may not pursue a foreclosed borrower to recover a deficiency.  Although some may consider this the equivalent of sending life boats and vests to the Titanic days after the sinking, it is a significant development in Nevada real estate law.

For the new law to apply the following requirements must be met:

  1. The real property is a single-family residence;
  2. The loan was used to buy the property;
  3. The borrower continuously occupied the property as a principal residence after the loan was made;
  4. The original loan was not refinanced;
  5. The loan was made by a financial institution.

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Comments

  1. Jan says:

    I’m glad for those who need help in the future. I am a recent widow. My husband died of cancer, the wrong kind because of an exception on the homeowners policy. It did not pay. My house is now worth 50% of what it was and the payments are too much for me alone. A bonefide hardship. The money pulled out of equity was not spent on fancy cars or clothes. It was used to increase the value of the home with added square footage of 1100 SF and added two garages. It was the home we thought we would live in another 25 years. Everywhere I went for help I was told I “was not qualified” to receive aid. Now with a short sale pending for 3 months and the foreclosure eminent. This doesn’t help me and the 3000 plus other widows and widowers in my position here in Nevada. This lifevest won’t save me. Thank you very much.

  2. Peggy says:

    Ditto above comment. Our home is worth 40% less than 3 years ago. We’ve tried to sell for 2+ years. We’ve tried modifications and despite 35% pay cuts and increased medical costs and issues, BofA does little to help. As we face short sale we now will have to face possible deficiency action.

    They need to retro this in for all the loans made from 2004 on … especially the ones made by Countrywide, et. al.

  3. D says:

    Interesting read on the short sale process. “If your home’s current value is significantly less than the amount owed, you are a candidate for short sale”. So, the bank recognizes that the home is worth less than the loan, but they usually will not modify the loan principle for the existing borrower – they CHOOSE to incur a lot of costs for realtors, lawyers, taxes, etc. while selling the house to someone else for the reduced amount.

    Wouldn’t it make more sense for them to work with the existing homeowner(s) and adjust the amount owed to the market value and give them a chance to stay? It would save the homeowner, save the bank/lender and stop the short sale/foreclosure bleeding!

    Banks and lenders caused the bad loans. Banks & lenders caused the decline in home values with all the short sales & foreclosures, and they just keep doing it!

  4. Shelley says:

    I agree completely with the statement. Banks/Lenders caused the whole mess in the first place, with their sub prime loans, etc. They caused the property values to spike because they allowed so many people to purchase that couldn’t before. They also talked a multiple of individuals into adjustable rate mortgages telling them that it was bound to go down further. These individuals that could not really afford what they were purchasing, trusted the lender and got into the adjustable rate mortgages. When the rates started going up, these people were sunk. It was only a matter of time before the collapse happened. Once the collapse happened, it was the banks who caused the problem that received the bailout money, not the citizens that were caught in the aftermath. Even after the lenders received the bailout money, they didn’t pass ANY of the relief off to the homeowners. So the picture I see is… The lenders caused the issue because of their greed, they kept the bailout money because of their greed and individuals continue to suffer because of lender greed, including deficiency judgments in some states. The financial system in this country is extremely one sided and is laid on the backs of the individuals on so many different levels.

  5. Lance says:

    Thank you for this great blog!

    I have a question about this new law. If the loan originated before 10/1/09 but was modified after 10/1/09, would this law apply?

    For example, I had a 5/1 ARM Interest Only loan that was originated in February 2008 and was modified with new loan terms to a 40-year P&I in January 2010.

    I think I know the answer (new law does not apply), but I thought I should at least ask.

    Thanks!

  6. Linda Eldridge says:

    Is there a law to protect against a Deficiency Judgment on rental property purchased in Las Vegas in 2006?

    Do I qualify for a tax exclusion to avoid being taxed on the difference between the amount owed and the selling price in a short sale?

  7. Linda,

    The new Nevada anti-deficiency law change is only effective for owner-occupied properties secured by a mortgage or deed of trust on or after October 1, 2009. Regarding tax ramifications, our best advice is to contact a tax attorney or CPA to discuss your specific situation. Have your tax professional check into the “insolvent debtor” qualifications under section 108 of the IRC.

  8. Eva says:

    I live in CA and I have a 2nd home in Las Vegas where my son is living. Tried loan modification with BA since Aug 2009 but got denied several times. Got a call fr them to tell me that the house is bank owned and will go on sale last July, then Sept for the 2nd sale date. My son still occupies the property and waiting for BA for more information. Can they come after my assets or can they charge me with defiency judgement?
    Pls help me with info..
    Thanks

  9. Chris says:

    I have a similiar situation as Eva. I am living in a Las Vegas home that was purchased by my mother in 2006. Her and my dad own a home in California, so the LV house is not there primary home. I can no longer afford the payments and we are starting a short-sale in Feb. My 2 questions are: Will we owe the deficiency balance?(understanding the house in LV is a “recourse” state, they probably can). Can they go after her house/assets in CA? I have spoken to several friends who have gone through the SS process and everyone said that it went fast, smooth and they didnt owe anything at the end. I guess Im like everyone else and would like some clarity before going down this road.
    Thanks!!!

  10. Bob says:

    Banks caused this, and greedy people who bought more home than they could afford, and used their house as an ATM for “free cash”, does not matter what for. Seriously, if the only way to buy a house is 5/1 ARM or negative am loan, common financial sense says YOU CANNOT AFFORD IT!

    The cognitive dissonance here is astounding. If you pulled money out of your house to “increase home value” you took advantage of the market so the market was good, now the market is bad because well, the pool of greater fools to sell to is shrinking and values are going down.

    We’re proud to live in a country that gives you the freedom to do what you want with your assets and money; with that freedom comes the responsibility of knowing and researching what you are doing. When one invests in the stock market and takes a 50% hit, one doesn’t go to the government to be made whole. If you’re treating your house as an investment, as many foolishly still do, you need to do your research instead of listening to salesmen.

  11. Bruce says:

    In response to the overly harsh assessment of the current mortgatge situation I’d like to state that I bought a condo well before the huge run-up in prices, thinking that I would retire there. After 6 years without even being late on a payment, my condo dropped in value by over two-thirds from it’s high point, so that I’m now $40,000+ “under water”. I have a casino job where my income has dropped by over $1,000 per month and I wasn’t able to keep up with the overy high payments. I asked for a loan modification but not a principle reduction. My mortgage company refused to cooperate so I stopped making my payments. What else was I supposed to do? At no point have I been greedy or had a sense of entitlement. All the mortgage company had to do was modify my loan to the current 30 year fixed rate and all of this mess could have been avoided. Your “tough shit” attitude is hardly warranted.

  12. Michael says:

    I will be retired soon and cannot afford to keep my underwater house. Can the banks go after my federal pension in a deficiency action?

  13. Linda says:

    We bought our house in 2004 @420K and relocated to another state since job changed in 2009. Last 3 years, we collected a rent of $1700 while we were paying $2600 a month( a 20 year loan @5.785%). Now the renter is out, the house maybe worth $205K and the loan balance is $265K. Last 3 years, we lost all of our savings just tried to be do the right thing. However, no banks would work with us. We just want to refi it as 30 year loan, no principle write down, so we can afford the payment. We are not greedy people. We were left no choices, but stop making payment. Even we could make two/three more payments, then what? We should have stopped making payment three years ago!!!

  14. wesiun says:

    Hey! your site’s stylesheet is broken in my Chrome. I think you should check it. cool post tho.

  15. Rex Jarrett, CPA says:

    A very fine and simple explanation of a very complex issue. Only a pure professional with years of experience has that unique quality. Very good job attorney Robert Noggle. And Kathryn Bovard should be applauded for her professional, concise and to the point article. Great job!!!!

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