NV vs CA

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

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