IMAG1702NRS 40 Does Not Limit Lenders’ Right to Sue Homeowners Even When the Note was Discounted on the Secondary Market.

In 2011 the Nevada Legislature passed A.B. 273.  One of the hot topics was how much a lender could sue a borrower for; if that lender purchased the note from a previous lender at a discounted price.  The discussion of the day (back in the summer of ’11) was that the current lender (who bought the note from a prior lender), pursuing the borrower was capped at the amount the suing bank paid to take over the loan. This seemed to be a protection for borrowers. There were numerous cases in the Nevada District System (Trial Level) that ruled in this way, in favor of the borrower, enforcing a cap. Basically the borrower was held to only be liable for what the current lender paid to buy the discounted note, which could be pennies on the dollar.

On December 24, 2014 the Nevada Supreme Court ruled that the language, ‘limited to the amount of the consideration paid by the bank,’ does not speak to the amount a bank or investor pays to buy the note, removing the cap. So, if bank 1 lends $400,000 and sells the note for pennies, say for $10,000 to bank 2, bank 2 can recoup the entire value of money lent or $400,000.  Many District Court cases were ruling that the deficiency was capped at the amount bank 2 paid to take over the loan.  No more.

The Supreme Court of Nevada stated:

“We therefore hold that NRS 40.451 does not in and of itself set an assignor-assignee, consideration-based limit on FFB’s recovery against respondents.”  First Fin. Bank v. Lane  339 P.3d 1289, 1294 (Nev.,2014) 

OTHER POSTS ON DEBT

Income Taxes & Foreclosure/Short Sales 2014 Update (12.17.2014)

Ten Facts about Mortgage Debt Forgiveness

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

OTHER SHORT SALE POSTS

7 Tips for Short Sale

Addendum to Short Sale Listing 1.26.2010

Advance Fees Continued and the FTC 1.6.2011

Advance Fees – Short Sales – FTC II 5.4.2011

Charging for negotiating short sales/Negotiators 10.1.2010

Deficiency Judgments Nevada 4.27.2007

Foreclosure and the One Action Rule in Nevada 4.10.2007

HAMP the Federal Shortsale Program coming April 2010

Income Taxes & Foreclosures/Shortsales 12.21.2007

IRS PUBLICATIONS shortsales/foreclosures:

Ten Facts about Mortgage Debt Forgiveness

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Judicial Foreclosures (Short sales are looking more attractive..) 3.23.2012

Lender Short Sale Approval Addendum

Nevada Home Owner’s Bill of Rights (Foreclosure/Short Sale/Judicial Foreclosure)

Nevada Supreme Court Mandatory Mediation Program and How it Affects Shortsale

Nevada Short Sale Documents

Seller Being Released From Liability Language in Shortsale

Seller Liability After Short Sale 4.20.2007

Short Sale Advanced Fees

Short Sale Addendum to Purchase Agreement October 2010

Short Sales and Bankruptcy and Waiting Periods 10.5.2012

Short Sale – “Dual Tracking” and the Homeowner’s Bill of Rights in Nevada May 2013

Short Sale Junior Lien/Senior Liens Rights To Sue & Other Changes

Short Sale Wallet Size Answer Sheet

Questions? email me darren@dwelshlaw.com

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Happy Birthday Webster The Nevada Supreme Court issued a ruling concerning MERS on Thursday September 27, 2012. Edelstein v. Bank Of New York Mellon, the Las Vegas Review Journal reported it was a “win” for the banks in foreclosure?

What does it mean?  The banks that relied on MERS are allowed to foreclose.  What is MERS?  See below.

  SHORT ANSWER  – MERS (Mortgage Electronic Registration System, Inc.), was confirmed as a proper player in the foreclosure process, and the assignments to and from MERS were upheld. The Court clarified however that the holder of the note and the holder of the deed must be the same. So, to say it is a win for the banks?  I guess you could look at it that way.  Mostly it clarified that at the time of foreclosure, the note holder (lender) and the deed holder (usually MERS) must be the same.  So MERS must assign the deed to the note holder (lender) for foreclosure to proceed.  In this case the note and deed were held by the foreclosing bank, so the Court allowed the foreclosure.

LONG ANSWER – It is obviously more complicated than that, Bank of New York Mellon’s trustee ReconTrust, BNY Mellon’s trustee, physically possessed the note a the time of the Nevada Supreme Court Mediation and used their servicer Bank of America as their representative in the Nevada Supreme Court Mediation Program.  But at the end of the day, the note and deed were held by the same bank and that bank was allowed to foreclose. So, a win for the banks? Not really, another way to look at it is that the banks must, yet again, clean up their paper work and hold both the note and deed at the time of foreclosure. This is not going to cause a landslide of foreclosures. It was not the impediment per se. It will make some mediations in the Nevada Supreme Court program perhaps go smoother.

What is this MERS you speak of centurion? MERS is often the holder of a deed of trust, and it is shown to that effect on the deed.  However, often the rights to the deed are transferred but not recorded at the county recorder. The Court explained MERS in a pretty succinct manner,

Typically, when a loan is originated, MERS is designated in the deed of trust as a nominee for the lender and the lender’s ‘successors and assigns,’ and as the deed’s ‘beneficiary’ which holds legal title to the security interest conveyed. If the lender sells or [transfers] the … [note] to another MERS member, the change is recorded only in the MERS database, not in county records, because MERS continues to [be the beneficiary of record] on the new lender’s behalf. So long as the sale of the note involves a MERS Member, … [t]he seller of the note does not and need not assign the [deed of trust] because under the terms of that security instrument, MERS remains the holder of title to the [deed of trust], that is, the mortgagee, as the nominee for the purchaser of the note, who is then the lender’s successor and/or assign. According to MERS, this system ‘saves lenders time and money, and reduces paperwork, by eliminating the need to prepare and record assignments when trading loans.

In Nevada to perform a non-judicial foreclosure on an owner-occupied residential property …(in other words not a judicial foreclosure NRS 40.430 nor a non-owner occupied foreclosure) the lender must meet certain requirements…

The Court confirmed that to enforce a foreclosure the deed and note must be held together by the same person/entity.  In this case MERS held the deed and note was held by a number of different lenders.  At the time of foreclosure MERS transferred the deed to the current note holder. The Court concluded, that the temporary separation (when one group held the deed and another held the note) was not irreparable or fatal to either the promissory note or the deed of trust. However, if they are not brought together, it prevents enforcement of the deed of trust through foreclosure. The two documents must ultimately be held by the same party.

The Court concluded that when MERS is the named beneficiary and a different entity holds the promissory note, the note and the deed of trust are split, making nonjudicial foreclosure by either improper. However, any split is cured when the promissory note and deed of trust are reunified. Because the foreclosing bank in this case became both the holder of the promissory note and the beneficiary of the deed of trust, proceeding to foreclosure was proper.

More importantly were the three cases before the Nevada Supreme Court this morning, addressing, statute of limitations on short sales, and junior liens and the right to sue borrowers as passed by the Nevada Legislature in 2011.

 Sandpointe Apartments., LLC vs. Dist. Ct. (CML-NV Sandpointe, LLC) Docket No. 59507

Nielsen vs. Dist. Ct. (Branch Banking and Trust Co.) Docket No. 59823

Lavi vs. Dist. Ct. (Branch Banking) Docket No. 58968.

These upcoming decisions will affect thousands of Nevadans that have been foreclosed upon or sold via a short sale.  I will let you know when I hear more.

Questions:  darren@dwelshlaw.com

gavel1.jpg I am getting questions on how a Chapter 13 affects a foreclosure?

Being the General Counsel of Prudential, Americana Group, REALTORS®, I do not practice in bankruptcy law and so I have asked this question of David Krieger, Esq., Haines & Krieger, LLC, 1020 Garces Ave., Suite 100, Las Vegas, NV 89101, PH: 702-880-5554, Fax: 702-385-5518, email: davkrieg@hainesandkrieger.com

David Krieger, Esq., says:

“Through a type of Bankruptcy called a “Chapter 13″ people can keep their property from being sold at foreclosure.  Quite often, filing a chapter 13 will also discharge (eliminate) any outstanding credit card debts, medical bills, payday loans and other unsecured debts.  In certain circumstances, a chapter 13 can even strip off (eliminate) a 2nd or 3rd mortgage.”

And I asked, “but what about Chapter 7?  Does that also assist arresting foreclosure?”

David says,

“Not really.  Chapter 7 doesn’t provide for a mechanism to cure pre-bankruptcy arrears.  Hence, chapter 7 is not a viable solution for saving homes in foreclosure.  However, a chapter 7 may be able to deal with any deficiencies resulting from foreclosed upon properties.”

“In order to be eligible to file a chapter 13, you must have regular income sufficient to support your ongoing Mortgage payments as they become due in the future.  You will also be required to make monthly payments to a chapter 13 trustee (who is a person appointed by the bankruptcy Court to administer the monthly payments).  Generally, through a chapter 13, someone who has fallen behind with their mortgage payments will make monthly payments over a course of 3 to 5 years to come current with their pre-petition mortgage deficiencies.  Upon completion of the plan payments, the mortgage is reinstated, the property is out of foreclosure and, frequently, all other personal debts are eliminated.”

“There are many misconceptions about how chapter 13 works.  Most of my clients (before they meet with me) think that they will have to repay all their debt.  This is almost never true.  The Bankruptcy system is set in place to help people in their time of need.”

“Also, many clients don’t think they will ever be able to purchase property or finance new cars again.  This is also untrue.  Not only will most chapter 13 debtors be able to purchase cars, homes, etc., in the future, but they are in better position to do.  Creditors lend based on the credit worthiness and other criteria of credit applicants.  When juxtaposed, a person in a chapter 13, who is discharging credit debt and reinstating mortgage terms is generally much more appealing than a debtor who has NOT filed bankruptcy still has significant outstanding debts such as defaulted loan/credit card obligations, mortgage deficiencies, etc.  To put this in further perspective, Creditors make lending decisions based on risk of default.  Generally, someone who in a chapter 13 for 12 months has established an ability to repay their ongoing debts, whereas a person who has not filed bankruptcy, but has bad debt outstanding has only demonstrated the opposite, an inability to manage their debt.  Accordingly, many of my clients are happily surprised when they receive offers for financing for new homes and cars within 12 months of filing a chapter 13.”

Altogether, Chapter 13 is very powerful tool for people who need financial assistance.  Unfortunately, clients of your REALTORS® are far from alone.  This real estate market has sent many people into my office who under normal economic conditions would never have dreamed of needing a bankruptcy attorney.  I meet with many clients weekly (including bankruptcy) seeking bankruptcy counsel, and generally this is the only option.  On that note, my clients often feel they are doing something bad, where in reality a Bankruptcy is frankly the most responsible outlet for most people facing the present dire financial circumstances.”