NV Law Change October 1 Restricts Deficiency Judgments on Foreclosed Homes
ByRobert 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.
Effective 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:
- The real property is a single-family residence;
- The loan was used to buy the property;
- The borrower continuously occupied the property as a principal residence after the loan was made;
- The original loan was not refinanced;
- The loan was made by a financial institution.
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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.
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.
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!
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.
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!