Effective July 1, 2011 changes to Nevada deficiency laws and short sale laws laws regarding debt collection is located here =====>Short Sale Junior Lien Holder Rights & Other Changes
Effective July 1, 2009 changes to Nevada foreclosure laws regarding mediation for Nevada residential owner occupied foreclosures is discussed here =====> “Mediation Option“
DEFICIENCY: Nevada, unlike California, is a deficiency state. Meaning even AFTER the bank forecloses the bank can still go after the remaining debt against a seller. Do not confuse this with a 2nd lienholders right to sue when they have been rendered a “sold-out junior lienholder” as described in the FORECLOSURE / ONE ACTION blog.
A home owner borrower in Nevada, even if the home owner is foreclosed upon can be liable for the remaining debt after foreclosure. But it’s rare and tricky. Here’s how it works. Skipping over how foreclosure works, the 120 days, etc. lets imagine a scenario where the foreclosure is just about to occur wherein there is an auction.
Let’s imagine a fake factual scenario:
- The home was purchased in 2005 for $500,000.
- The current debt on the home is $400,000 (including all late fees, attorney fees etc.)
- The current value of the home is $390,000.
At the foreclosure ‘auction,’ if the home sells to a bidder at a price in excess of $400,000, the debtor (the foreclosed upon home owner) owes nothing more to that foreclosing bank. If at the foreclosure ’ the bank sells the home at a price not adequate to cover what remained due on the loan, say for example for $300,000, then the lender may file what is called a “deficiency law suit,” per NRS 40.451 (See [i] Below) This case must be filed within six (6) months of the foreclosure sale. The amount of ‘deficiency’ to be paid is determined on the following formula: An appraiser is appointed to find the market value.
The debtor receives a credit of the market value or the foreclosure sale price whichever is greater. So in our example there is $100,000 of debt still owed because the auction sales price was only $300,000. The difference between $400,000 and $300,000 is $100,000. However, we must look at the ‘market value.’ We are imagining that the market value is $390,000. So the home owner gets a credit of $390,000 even though the bank only received $300,000 at the action. Therefore the ‘deficiency’ would be $10,000 or $400,000 (the amount owed) minus the credit of market value of $390,000 is $10,000. Bankruptcy (See [ii] Below) complicates all law suits and foreclosures and in some instances eliminates debt.
Want to read more? Here’s a 2005 Nevada Supreme Court Case on one action and foreclosures. (See [iii] Below)
[i] http://www.leg.state.nv.us/NRS/NRS-040.html#NRS040Sec251
[ii] Due to the complexity of bankruptcy law, and the difficulty of determining which form of bankruptcy will apply to any given situation, most people will benefit from consulting with a qualified bankruptcy lawyer before filing for bankruptcy. The Prudential, Americana Group, REALTORS® legal department has a list of recommended bankruptcy attorneys at this Referral List.
[iii] http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=nv&vol=121NevAdvOpNo79&invol=2
(Note: If you do not have a FindLaw account, you may create a free account after clicking on the link above. It will then direct you to the case cited here.)
See also the April 2008 MLS Terms of Use Memo from the Greater Las Vegas Association of REALTORS
May 1, 2007 at 11:40 am
On Friday April 20th you wrote that “Nevada is a One Action state” the article went on to explain “the bank can take the property by foreclosure or sue for the debt”.
The blog dated 4/27/07 states that Nevada is a deficiency state……After the bank forecloses they can still go back after the remaining debt.
I’m confused and would appreciate a little more clarification on this foreclosure issue.
May 22, 2007 at 9:25 pm
Great question! This one can get very complicated in a hurry. The Nevada Supreme Court has had to hear and rule on a number of cases where these issues have arisen.
It is possible, but not common for the 1st lien holder to sue following a foreclosure; it can be difficult and even impractical. However, keep in mind that a 2nd or 3rd lien holder may still have to sue in the event that the 1st lien holder executed a foreclosure which left them deficient.
Part of the Nevada Supreme Court Conclusion in the “McDonald vs. D.P. Alexander” case states; “The one-action rule and its exceptions are intended to protect debtors by preventing creditors from realizing more than the face value of a debt, not to deny a creditor recovery of a legal debt altogether.”
What’s really important to know is that these situations are generally complicated and can be very messy. That is why we always strongly urge clients to seek legal counsel in such instances.
June 7, 2007 at 2:46 pm
Could you please tell me more about 2nd lienholder. Can they sue for the full amount borrower Owes?
June 7, 2007 at 5:00 pm
I just wanted to add t my question. Both 1st and 2nd are the same bank.
Thank you
June 9, 2007 at 5:56 pm
Once the first lienholder has successfully completed foreclosure, then the second, third, etc. may sue by filing a deficiency judgement. It doesn’t matter if they are the same or different bank or mortgage company.
February 16, 2011 at 9:32 pm
What if you receive a 1099A for the second, can they still sue once you file your taxes? I live in Nevada.
February 17, 2011 at 11:16 am
Yes, even though you have been 1099’d the Lender can still pursue the debt.
September 12, 2007 at 4:16 pm
After the 1st completes a foreclosure, and then sues for a deficiency on the 1st TD, what is the basis for any federal tax consequence?
September 13, 2007 at 5:42 pm
The federal tax liability comes from not repaying all monies one borrows.
December 4, 2010 at 1:36 pm
Any unpaid debt is taxable. There are exceptions as to mortgage debt.
Ten Facts about Mortgage Debt Forgiveness http://www.irs.gov/newsroom/article/0,,id=205004,00.html
March 9, 2008 at 3:22 pm
The foreclosed property is in North Las Vegas, NV. There was a second mortgage on this foreclosed property. Can the second mortgage company file for a deficiency judgement against the borrower even if the the borrower lives in California, which is a non-deficiency state? HOw is this going to work?
April 25, 2008 at 9:18 am
[…] https://ameglegal.wordpress.com/2007/04/27/tgif-legal-tip-foreclosuredeficiency/ […]
January 28, 2009 at 9:06 am
In the state of Nevada. In today’s current economic situation. What percentage of foreclosures that the bank are suing for a deficiency judgement.
April 4, 2009 at 1:23 pm
Darren, In the past the federal tax liability from an upaid debt (of any kind) arises when the creditor abandonds its claim to the debt (“forgives the debt’). The value of the forgiven debt then becomes taxable to the debtor.
The tax liability does not come from the fact that one has not repaid the debt. As long as the creditor keeps a lien on file or has it at a collection agency or simply wants to recover there is no tax liability to the borrower/debtor.
Even if the debt is foregiven the tax liability can be avoided by extinguishing the debt by having in discharged in bankruptcy.
June 23, 2009 at 8:06 pm
What if a property is foreclosed on by the 1st lienholder, has an instant auction that covers all debt ($405,000 which covers loan, attorney’s fees, etc.), and then sells the home for a profit (home sold in 3 months for $495,000). BUT, the 2nd lienholder is paid nothing and is now suing the homeowner (who received none of the profit from the bank’s resell of the home) for the entire amount. In your situation above, the bank had to recognize fair market value for the home when their other division purchased it at auction. Given that the home sold in a very depressed housing marking for 25% more than the bank paid, isn’t it safe to say that whatever they assessed the fair market value to be was understated?
July 2, 2009 at 1:59 pm
Second Lien holder is allowed to sue the home owner in this scenario. The foreclosure of the first caused the second lien holder to be a ‘sold off junior’ with all the rights to sue the homeowner, no liimitation.
October 12, 2009 at 3:10 pm
What are the main benefits of performing a short sale over letting it go to foreclosure or doing a deed-in-lieu?
October 21, 2009 at 4:38 pm
With a Shortsale the lender can ‘agree’ to waive the remaining portion of the debt, and if there is a Second Deed, you can also get that waived. With foreclosure Lender has 6 months to file suit, Second Deed has 6 years.
October 14, 2009 at 12:39 pm
What is the time limit for the second to file a judgement against the foreclosed homeowner in Nv?
October 21, 2009 at 4:37 pm
6 years
http://www.leg.state.nv.us/NRS/NRS-011.html#NRS011Sec190
NRS 11.190 Periods of limitation. 1. Within 6 years:
(b) An action upon a contract, obligation or liability founded upon an instrument in writing, except those mentioned in the preceding sections of this chapter.
October 16, 2009 at 11:35 am
[…] Deficiency EXPLANATION […]
December 13, 2010 at 11:31 am
need more info on deficiency after shot sell in nevada
October 20, 2009 at 10:57 am
My house went into foreclosure and sold in 2009. I had multiple offers that I accepted however the 1st lein holder did not accept the offer. The 2nd lien holder approved it multiple times. On my last offer, the 1st approved it and the 2nd informed me that they transferred the loan to an attorney. The attorney wanted me to sign a promisorry note before releasing the deed. I did not agree since the 2nd approved it prior and the property went into foreclosure. Now, the 2nd and the attorney is after me for deficiency. Can they still sue for deficiency?
October 21, 2009 at 4:34 pm
Yes, the 2nd deed is now a ‘sold off junior lien holder (after the foreclousure). Think of it as a credit card. They have the right to sue you, pursue you, etc. Try to work a deal with them at a discount to avoid having a judgment levied against you.
November 22, 2009 at 8:05 pm
If there is only a first and the lender agress to a shortsale, can they still, by law, pursue a deficiency or because they are accepting the shorted amount is that debt forgiven? Do they have to specifically state that they will not pursue and how long would they have to pursue since it is not a foreclosure?
November 23, 2009 at 3:12 pm
yes, that is the concern with a short sale, the lender now has 6 years to go after owner (only 6 months on foreclosure); MAKE SURE owner gets full release from bank, see my other blog on ‘release language on short sale’
August 14, 2010 at 3:18 am
Can PMI insurance company, pursue you in this case if the Bank waived your deficiency ?
From what I understand the Bank will get money from the PMI insurance in short sale, right ?
August 15, 2010 at 2:00 pm
They can if they get the Lender to subrogate the Lender’s rights to the PMI. Mortgage insurance benefits the lender, not the homeowner.
You want to be sure that your Lender approval prohibits the mortgage insurer from a subrogation claim against you.
The Lender can pursue the homeowner – 6 months for foreclosure &//6 years for short sale. If you hear of a PMI pursuing, let me know please.
November 24, 2009 at 11:25 am
This is why it is so critical to get a lawyer and understand the ramifications of a short sale. Get the release!
November 24, 2009 at 2:31 pm
Great dialog. I am a tax professional for H&R Block and this year we are going to have a lot of people coming in with foreclosure issues. Two questions I didn’t see answered.
1. I assume if the lender doesn’t obtain a Deficiency Judgement then they will not issue a 1099-C form to the borrower henceforth the borrower has no tax consequence.
2. If the property is sold at the foreclosure sale for less than the fair market value (FMV), who needs to take action for an appraisal and what action is needed if the appraisal shows the home sold for less than the FMV? In the tax perspective, if a borrower has a 1099-C for say $100,000 of cancelled debt and it is determined using FMV he only has $10,000 of cancelled debt, what is the process to correct this for tax purposes?
November 24, 2009 at 2:41 pm
1.) The tax consequence exists, it is my understanding, the moment the debt is not paid by election. The Owner should inform the accountant (or follow the IRS formula in my other blog) of the non-payment. The return can be modified if there is payment later, as result of a suit.
2.) I do not know the answer to #2, again if you look at the IRS formula on how to handle these items, the borrower may simply be able to ‘declare’ the value, but it will be in contrast to a 1099 amount. But this happens once in a while.
December 2, 2009 at 7:30 am
Darren,
Can you please contact me? I have further questions.
Thanks in advamce
January 8, 2010 at 5:50 pm
What is the difference between Short Sale and Deed-in-Lieu? What are its advantages/disadvantages? Thanks
January 13, 2010 at 10:56 pm
This is some valuable information, I just finished my paper for school and think i may need to bookmark or save this for the second class lol. You may have just made me a regular 🙂
January 24, 2010 at 9:37 am
Darrin,
I have a home in NV with a 80/20 loan.
Question: The house will be foreclosed on in the near future; can I still pay on the
2nd (eguity line of credit) even though the 1st foreclosed? Is there something I need to do or should I just let the 2nd sue me for a deficiency judgement?
Thank you
February 1, 2010 at 12:59 pm
You should contact your lender and request this. By defaulting on your first, the 2nd is also now in default and typically the paper work in the 2nd says they may ‘accelerate’ upon not being secured. In other words the 2nd is now a sold off junior lien holder and can pursue you as a lender, via breach of contract claim for 6 years.
February 3, 2010 at 1:16 pm
If I short sold my house and got a 1099C from the bank that I will file this year, can I still recieve a deficiency judgment for the difference in the future?
February 3, 2010 at 7:45 pm
We have just closed on a short sale. Are we able to still ask the bank for full release after the fact. I didn’t know if this is ever done.
February 11, 2010 at 8:29 am
I am a tax professional for H&R Block. We are seeing a lot more activity this year in related to foreclosure tax issues. Thought this overview might be helpful. Foreclosure is the process by which the lender repossesses a property and resolves the debt owed. Foreclosure can trigger two different tax consequences; (1) ordinary income from the “debt deficiency” and (2) gain from the appreciation of the property. In tax-speak, Nevada is a “recourse” state which means the borrower can be personally liable for any debt deficiency….that is any debt remaining after subtracting the value of the repossessed property. This debt deficiency can be taxed as ordinary income. There are a number of cascading IRS rules that allow exceptions or exclusions regarding payment of the ordinary income tax. These exceptions and exclusions can be due to bankruptcy, insolvency, or the fact that the property involved was your personal residence. Foreclosure can also trigger a tax consequence due to gain, the appreciation of property from it’s original basis. Since foreclosure is treated as a sale of the property, all the normal tax rules apply to the gain. For instance, as your personal residence you are allowed to exclude up to $250,000(single)/$500,000(married) of the gain. Generally gain will only be an issue in higher end properties that were purchased 5-10 years ago, before the big run up in values. How will you know if you have a tax consequence to deal with? Generally, you will receive a form 1099C and/or a form 1099A from the lender with information on any debt deficiency. Gain will need to be figured separately. You should consult a tax professional to make sure you deal with these tax issues properly.
March 5, 2010 at 9:18 am
[…] Deficiency Judgments Nevada […]
April 14, 2010 at 5:12 pm
I realize that Nv. is a deficiency state. What if the property in question is an investment property (not primary residence). Are rules/trends different? Meaning, are banks more likely to sue for deficiency vs. primary home owners?
Also, is it harder to foreclose/ short sale as an investment prop.?
thanks
April 14, 2010 at 5:14 pm
There is little difference between income property and owner occupied. The latest legislature changed a few items. No, no difference, lender can foreclose and pursue within 180 days of Trustee Sale, whether owner occupied or not.
May 2, 2010 at 8:01 am
what lawyer in nevada do you recommend who is very sharp and able for assset protection and deficiency guidlines.
May 2, 2010 at 11:28 am
Hi,
Is filing bankruptcy the solution when a bank goes after the remaining debt after foreclosure?
Kobe
May 26, 2010 at 3:38 pm
Hi,
I try to do the best for my family and I still do not know if I should let the house in foreclosure or in short sale… I do not care about my credit score, I only care to know what is best for future deficiency judgments.
I have 2 houses, I’m in the short sale process for the second home which I paid $325 000 in 2006; 1st and 2nd = $292 500. The 1st approved the to short sale for $140 000 and if the process is finalized I’ll be $162 500 short… I realized I can use insolvency for taxes, but make no use for me to let the house in short sale because the 1st has 6 years to file suit versus foreclosure when they have only 6 months to file suit… sounds like plenty of time in short sale and I do not think is in my advantage. Do the bank really offer full release for short sales? If not, I’ll let the house in foreclosure; 6 months sounds better than 6 years.
Please, tell me if I’m mistaken…
Thanks
Laura
May 28, 2010 at 1:55 pm
Yes, some lenders are releasing the right to sue you later. Ensure you get this in writing. See my blog on this issue here: https://ameglegal.wordpress.com/2009/10/16/tgif-legal-tip-short-sale-rele ase-language/
May 28, 2010 at 6:56 pm
At the end of the third paragraph relating to deficiency it says an appraiser is hired to obtain market value. where is that written, i cant seem to find any record of that. thanks
May 29, 2010 at 10:18 am
That is found in the law. Under NRS 40.457. http://www.leg.state.nv.us/nrs/NRS-040.html#NRS040Sec457 It says, that before awarding a deficiency judgment under NRS 40.455, the court shall hold a hearing and shall take evidence ..concerning the fair market value of the property…the court may appoint an appraiser to appraise the property ….
I call this the ‘appraisal defense’ – it works like this. You owe $200k, but property sells at foreclosure at $50k, so bank sues you for $150k? Ok, but if you get an appraisal to say property is worth $100k, then you take $100 from $200 and you get $100. So instead of the bank suing you for $150, (diff. b/w what debt is and what sold at foreclosure) bank can only sue you for $100 (diff. b/w debt and actual value per the appraiser).
July 19, 2010 at 3:35 pm
I only have a 1st mortgage and the loan was processed before 10/2009, and the lender is going to conduct trustee sale tomorrow. What will happen next? Is it right that the lender has six months to file for deficiency judgement? What if the lender does not file the deficiency judgement, and I will relieve from any financial obligation permenantly? If not, what can I do to alleviate this financial burden? thanks.
September 1, 2010 at 8:51 am
I am currently in Chapter 13 bankruptcy. I have been in it over a year and no confirmation as of yet. I have paid in to it and it hasnt been confirmed because they want more money from me each month. I owed 230K on my house. I wanted to do deed in lieu. They sold my house at auction for 36k. My other debts are only at 35k. Am I better off dropping out of my bankruptcy and talking to my creditors or do you think my house will file for a deficiency. Also, how do I find out if my lender received tarp money? My attorney never calls me back, doesnt answer my emails etc. I get all of my information from LIVE ECF from the court website. Im stresed. My payment is $700 but they are showing disposable income as $1200 and there is no way I will be able to pay that. Please help.
September 1, 2010 at 11:18 am
I can’t give you legal advice. The rules for deficiency are that they must file within 180 days of the Trustee Sale. So you must wait out that period of time. I understand you are owed a call but you must get with your attorney and decide if you should change your strategy.
September 11, 2010 at 9:55 pm
Hi, I have a friend who has a loan of 300k on a property that is valued at 150k. She is a california resident with this second home in Las Vegas that is now being foreclosed on by the bank. Can she avoid the liability of the desprepancy which is about 150k? Thanks Stephen
September 12, 2010 at 12:53 pm
If she is foreclosed upon, the Lender has 6 months from the time of the trustee sale to sue her for a deficiency. But after that, if the claim is not made within the 180 days, she is no longer liable. She will be 1099A’d for the difference.
I have a blog on each of these issues, let me know if you need more.
September 15, 2010 at 8:13 pm
Hello, if a property (with a 1st & 2nd) goes through the foreclosure process (Trustee Sale) and there are NO winning bidders during the auction (because of being worth less than is owed) I understand it that the property becomes a REO (Real Estate Owned). At this point has the property successfully gone through the Trustee Sale process? With regards to the rules for deficiency (on the 1st) they must file within 180 days of the Trustee Sale. Does the 180 day timeline start from this point in time or when the property is sold as a REO at some point in the future?
September 15, 2010 at 9:02 pm
Correct, it has gone to sale, and is purchased by the Lender. So the 180 days started at that sale (auction). The 2nd has six years to pursue.
September 16, 2010 at 11:29 am
Darren, one more question on this…if the lender (on the 1st who has now purchased the property at auction) should so decide to pursue a deficiency within the 180 day period, how do they determine what the actual amount of the deficiency would be? Do they consume the entire debt of the loan or do they purchase the property (as the highest bidder) at some amount lower than the entire debt?
September 18, 2010 at 9:08 am
I have a blog on this
https://ameglegal.wordpress.com/2007/04/27/tgif-legal-tip-foreclosuredefi ciency/
The amount of the deficiency is confusing. It is the diff. between the amount owed and it what is sells at auction. So let’s do a scenario. Loan is $100k. Foreclosure auction occurs. The bank has to end up as the highest bidder to get the property back. Pretend there is a bid at 70k. Bank then bids 70k plus 1 dollar. Now bank is owner. Bank looks to borrower (the guy that was foreclosed on) and says, “you owe me the note of 100k, minus the 70,001$” So the deficiency amount is approx. $30,000.
Borrower (the guy that was foreclosed on) has what’s called the ‘appraisal’ defense. So the Buyer goes out, during the litigation, and gets an appraisal. The appraisal comes in at 80,000$. How can that be? Don’t fret, it happens. Now the amount owed is “$20,000”. If the appraisal came back at $65,000, it does not go to $35k. You don’t lose ground past the $30k from the Auction.
dw
September 16, 2010 at 8:32 am
Thanks Darren, appreciate the prompt response.
September 16, 2010 at 7:39 pm
if a deficiency judgment is filed on time for a 1st (6 months) or you are timely sued on a 2nd (6 years) what is the statute of limitations for the lender to recover from the homeowner? If the amount under water is significant (+500K) and employment circumstances now uncertain, as is the case, just need to understand if I could potentially be on the hook for life…or is it the next 5years…10 years..
Thanks!
September 18, 2010 at 9:08 am
A judgment is a judgment. So once a judgment is filed in NV against someone it lasts six (6) years. NRS 17.150. At the end of the six years it can be renewed. NRS 17.214. Except for how much the amount of alleged debt is being pursued, the Lender does not take into consideration if the borrower is underwater, hardship etc. Judgments are not good. (A collector is not as bad). If you get a judgment for big numbers against you, you are highly recommended to seek legal counsel as to Bankruptcy.
October 8, 2010 at 9:38 am
[…] Deficiency Judgments Nevada […]
December 2, 2010 at 10:12 pm
My brother unfortunately died due to stress on November 22, 2010. He had filed for bankruptcy and his home was in the middle of being foreclosed. Will he owe any money to the lender on the foreclosed home as he is now deceased? Also he died of stress because he was trying to go through loan modification but the lender made it so difficult for him.
December 3, 2010 at 11:52 am
No. The lender will foreclose and will not pursue the estate of your brother. Legally they have the right, but they simply will not.
You can send a letter announcing that your brother passed to the bank. That usually ceases any further contact, and they simply foreclose.
December 3, 2010 at 12:09 pm
When managing the estate of your deceased brother, it is a good idea to order multiple copies of the death certificate. That is the best way to legally notify the various parties when settling his estate. Even a copy of the original certificate may not be adequate in some situations.
December 3, 2010 at 3:37 pm
Thank you both for your quick response! We ordered 10 certified death certificates since the lender ironically did request a death certificate as part of my brother’s loan modification. Now, they can certainly have my brother’s death certificate.
December 3, 2010 at 3:44 pm
[…] Deficiency Judgments Nevada […]
January 3, 2011 at 5:00 pm
[…] TGIF Legal Tip: FORECLOSURE / DEFICIENCY April 2007 64 comments 3 […]
January 25, 2011 at 12:59 pm
Hoping you can clarify regarding the following: if a lender seeks a deficiency judgment subsequent to a short sale, does the “appraisal defense” still apply? And if so, how would this play out given that the lender has 6 years to file (if I understand correctly?)
Thanks,
Ujjal
January 25, 2011 at 6:02 pm
To be more clear, the property in question sold for 131K, with a loan balance of ~ 480K. The market value at the time was likely very similar to the short sale price, maybe a bit more, e.g., 150K. So would the deficiency be limited to the 150K – 131K = 19K, e.g., would a court only grant this amount, similar to the rules for foreclosure? That is what I mean by use of the appraisal defense.
Ujjal
January 25, 2011 at 7:13 pm
There’s not enough information to give you a completely accurate answer. The fact that the debt is $480K and you gave up a property that sold for $131K means that there is a deficiency of $349K. If you feel the $131K does not reflect the true market value of the property, the “appraisal defense” lets you submit evidence that the property is worth more, say $150K. This still leaves a deficiency of of $330K. Whether it’s a foreclosure or a short sale, both look like a sales for tax purposes so all the gain/loss rules apply plus potentially the cancellation of debt income. On the foreclosure, the lender can get a deficiency judgement and try to collect however, I have not seen very many of late. You can shield the deficiency from taxation under current laws but the lender can still dog you for the unpaid debt. On a short sale the same tax issues apply but most savy real estate professional will make sure to incorporate language in the transaction releasing the seller(debtor) and buyer from any further obligation. This is best handled outside the sales contract itself because all the provisions of the sales contract usually expire, or are deemed satisfied, when the transaction is closed.
Senior Tax Advisor & Real Estate Broker
January 26, 2011 at 8:42 pm
If they come after you, no defense of appraisal. Are they coming after you?
January 26, 2011 at 8:42 pm
No. It would no longer apply. Once you move out of the foreclosure deficiency, you are out of the ‘consumer’ protection style of the law. You are simply in a breach of contract. This is because the lender let you ‘have’ the property by releasing their lien. So you are simply in a six year breach of contract statute of limitation scenario.
January 31, 2011 at 5:16 pm
Thanks Darren and Bill for your comments.
In response to Darren’s question, they say they are coming after me, but I can’t yet tell how serious they are. Searching the Clark County court website, I don’t see a single case where my lender has brought a case. But then again, my deficiency is pretty large, so maybe they will decide it’s worthwhile. Time will tell.
Ujjal
February 1, 2011 at 4:42 am
My home was sold at a trustee sale on 7/20/2010. I received a 1099-A with the file date of 12/31/2010, Box 1 (Date of lender’s acquisition)7/20/2010; Box 2 (Balance of outstanding) $266,696; Box 4 (Fair market value) 155,000; Box 5 (Was borrower liable for repayment of the debt) Yes box was checked.
Q1: have the lender filed deficiency law suit per Box 5 or retain the right to file the suit?
Q2: should I contact the lender to check its intention?
Q3: I do not have a second mortgage. Is it correct that if the first-mortgage lender does not file deficiency judgment within six months after the foreclosure, the lender gives up its right to collect the debt in the future?
February 1, 2011 at 9:10 am
Lender has 180 days from trustee’s sale date (7/20/10 according to your comment) to file a lawsuit against you. You can check if there is a pending lawsuit here https://www.clarkcountycourts.us/Anonymous/default.aspx. If they have not filed within the 180 days, the statute of limitations expired.
February 2, 2011 at 7:52 pm
There are two issues at work here. One is whether the lender pursues a “deficiency judgement” and attempts to collect the debt. The other issue is the tax implication. Regardless of whether or not the lender attempts to collect the debt, the lender may issue a 1099-C showing a cancellation of debt. This form is sent to the IRS and could result in a tax liability. (The 1099-A does not generate any tax liability by itself.) Generally, cancelled debt is taxed as ordinary income which basically means you have to pay taxes on the amount cancelled. There are however, exclusions for debt cancelled on a personal residence that can eliminate the tax owed. Also, since a foreclosure is viewed as a sale of the property there could be an additional tax liability if there is a capital gain. You need to confirm whether the lender issued a 1099-C because you will need to reconcile this with the IRS when you file your tax return. I highly recommend you seek the help of a tax professional or attorney that has had experience with foreclosure tax issues.
April 7, 2011 at 1:35 pm
Darren,
My home was foreclosed on and in a trustee’s sale ownership transfered back to the lender in June 2010. I did recieve a 1099-A from the lender. My question is at what point in time must the lender file a judgement against me and how can I tell if one has been filed against me? From what I can tell here it looks like the lender has 6 months to file a judgement. Correct? Thats 6 months from the trustee sale?
April 8, 2011 at 10:48 am
6 months from the Trustee’s sale date. If your sale date was June 2010, the time to file expired in December 2010.
http://www.leg.state.nv.us/nrs/NRS-040.html#NRS040Sec455
NRS 40.455 Deficiency judgment: Award to judgment creditor or beneficiary of deed of trust; exceptions.
1. Except as otherwise provided in subsection 3, upon application of the judgment creditor or the beneficiary of the deed of trust within 6 months after the date of the foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively, and after the required hearing, the court shall award a deficiency judgment to the judgment creditor or the beneficiary of the deed of trust if it appears from the sheriff’s return or the recital of consideration in the trustee’s deed that there is a deficiency of the proceeds of the sale and a balance remaining due to the judgment creditor or the beneficiary of the deed of trust, respectively.
April 11, 2011 at 11:09 am
[…] Deficiency Judgments Nevada […]
April 12, 2011 at 5:17 pm
My primary residence foreclosed Oct 2010. The first sent me a 1099, what is the time frame the second has to file a deficiency?
thanks
kathy
April 13, 2011 at 3:13 pm
6 months from the ‘date of trustee sale’
May 4, 2011 at 11:02 pm
My son’s case is similar to “John” above.
More than 6 months passed since trustee sale; lender did not file for deficiency.
My son received a 1099a with box checked saying he was liable for repayment of the debt. He did not receive a 1099c.
Since the lender did not pursue a deficiency and my son is no longer liable, it would seem that the loan is now non-recourse.
IRS instructions specify that for non-recourse loans, Capital gain/loss is determined by using outstanding loan balance (- adjusted basis.) And there is no COD ordinary income liability.
Please advise
May 5, 2011 at 10:30 am
It is a tax issue only, when he files his return he deals with it. Owner occupied, exempt more or less, investor…there is a formula, again, likely no tax liability.
Darren J. Welsh
May 5, 2011 at 12:37 pm
Darren, Thank you for the quick response.
Your site is a ray of sunshine in this otherwise black hole of securitization, preditory lending etc, etc greed and deception.
My son was foolish enough to believe in the hype when the bubble was inflating and now is dealing with 4 foreclosures, 2 in Florida, one each in California and Nevada. (Each state with different laws:>)
I sure hope he has learned a lesson !
May 5, 2011 at 7:51 am
I just went through foreclosure on an original purchase money 80/20 primary residence home. All money used to purchase the house. How does original purchase money effect the 20 part (second loan)as far as them fileing a suit against me? Tt’s been 8 months and I’ve heard nothing from them (BofA).
June 28, 2011 at 6:12 pm
Hello,
I have a primary residence with equity and 2 rental properties that are 150K plus upside down. 1 has a single leinholder and the other has a 1st and 2nd. If I was to short sale or get foreclosed on would they be able to come after my primary residence that has equity for the deficiency?
July 14, 2011 at 2:37 pm
My home was sold at trustee sale on Jan. 7, 2011. Now 6 months later I think I am in the clear from a pursuit of the deficiency. However, I received two notices (one for 1st loan & one for the 2nd) via regular mail that BAC Home Loans Servicing was transferring the servicing of my two loans to Bank of America, N.A. The letters also noted that this was an attempt to collect a debt and listed the amounts due for each and that the debt is owned by FNMA ACT/ACT DEFAULTS & PICONS for the 1st and BONY (CWHEQ 2006-S8) for the 2nd. I have checked with both the Justice and Districts courts and no court judgment has been brought against me for the deficiency. Am I in the clear or can they still come after me?
July 19, 2011 at 3:21 pm
Darren,
Thank you for replying to my question. You noted that there is a new law pertaining to the second. I am a bit confused as to if I am protected under this law. Again, my loan originated in October 2006 and hose was sold at trustee sale Jan. 7, 2011. The new law (for second loans) looks to only apply to homes sold after July 1, 2011. Why is this not retroactive? It does not help anyone who may have sold at short sale or been foreclosed on prior to this date. Also, if the 2nd does come after me, via a collection agency, is it right that they can only collect on the amount that the debt was sold to them from the original bank?; which is usually significantly lower than the original amount due.
July 20, 2011 at 9:08 pm
If i understand this correctly the bank only has 6 mounths to come after the seller on the ist for a short sale .i recieved a letter form the bank a little over two years after the short sale wanting to negoiate a deal and i did have a second but settled that before the short sale how should i handle this ?
July 28, 2011 at 9:57 am
The First Deed has SIX (6) Years to go after a Seller in a short sale, even with the new law effective July 1, 2011. The First has Six (6) Months to go after Seller on Foreclosure. The Second Deed has SIX (6) Months to go after a Seller, as of July 1, 2011, for both a Short and Foreclosure.
July 29, 2011 at 12:56 pm
Darren,
I want to be sure I have this right. Your post said the second has (6) months to go after a seller. But this is only on mortgages taken after July 1, 2011, when the new law went into effect, Yes? It’s been nearly a year on my foreclosure. I’m safe on the first. My second was only $24,000 (BofA) and they just recently sent me a letter indicating that the loan was being transferred to some other faction of BofA, then, another letter came saying to disregard the first letter. I’m thinking the loan is too small for them to sell to a collections agency and too small for the investor to mess with. I offered to settle for $6,000, but all they want (BofA) is more financial docs which I’m not going to send them. I was told to do nothing until there is actually a judgment. Can you tell me when the time line starts on the 6 years? I was told at the point of default, not foreclosure.
January 2, 2012 at 9:37 pm
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March 23, 2012 at 12:06 pm
[…] to seek this debt has to be filed within 6 months of the trustee sale date. See my post on this here. These lawsuits were simply not being filed, for the most part, by the large institutional […]
April 5, 2012 at 4:33 pm
Darren,
I ran across your site and interesting reading.
My house in Nevada was foreclosed on and it was sold at auction June 3 2011. I received my 1099A and box 5 was checked that I am being held responsible for the debt. That was 10 months ago from , I have been checking clark county court records to see if there was a judgement filed against me. I haven’t seen nor heard anything. Am I safe? Are my bank accounts safe? Its way past the six months. Oh it was my primary residence and I only had the one mortgage NO SECONDS.
June 2, 2012 at 11:42 am
Darren, may I ask a question regarding my situation. My house was foreclosed and sold in July 2011. First lender did not seek deficiency judgment. Now, 2nd lender (I used the 2nd loan for a swimming pool right after purchase of the house), has turned the debt ($40K) to a law firm to collect on the debt. I recently received a letter from the law firm validating the debt. Their collection letters might be forthcoming. Any thoughts on my options? Any information would be much appreciated.
June 2, 2012 at 12:09 pm
From the tax perspective, any time a debt is cancelled, you MAY owe taxes on the cancelled debt amount. (Think about $40,000 x 25%) If you receive a 1099-C(not a 1099-A) then you need to seek the help of a tax professional to make sure you file your return(s) correctly. Depending on your situation at the time the debt was cancelled, you may not owe any taxes at all. However, there are some complex tax rules dealing with bankruptcy, insolvency, business vs personal use, and other factors, that need to be evaluated in order to file correctly.
Bill Bevan, Senior Tax Advisor III, H&R Block
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