LEGAL GUIDE
Written by attorney Shawn G. Pearson | Sep 14, 2011

Nevada Short Sales and Foreclosures: 2011 Legislative Update

Shawn G. Pearson

Woodburn and Wedge

(775) 688-3017

[email protected]

SUMMARY OF 2011 CHANGES TO NEVADA LAW GOVERNING

FORECLOSURE AND SHORT SALE

Old Rule

New Rule

Comments

Foreclosure – Deficiency Action by First Lien Holder: Statute of limitations for deficiency action by first lien holder after foreclosure is six months from date of foreclosure sale.

No change – NRS 40.455

Limitation on Amount of Deficiency Judgment by First Lien Holder: existing law limits recovery by first lien holder to the difference between (a) the greater of the fair market value of the residence or the auction price and (b) the lesser of the amount due under the note or the amount paid for the note by the party seeking the deficiency.

Proceeds of insurance payable to holder of lien as a result of default must be deducted from deficiency judgment.

Where suing party acquired loan from third party, recovery is limited to amount of consideration paid, plus interest and reasonable costs.

(AB 273 Section 5)

Clarifies existing law and adds a provision for deducting proceeds of insurance payable to lienholder.

Limitation on Amount of Deficiency Judgment by Second Lien Holder: law does not address limits on recovery.

Proceeds of insurance payable to holder of junior lien as a result of default must be deducted from deficiency judgment.

Where suing party acquired loan from third party, recovery is limited to amount of consideration paid, plus interest and reasonable costs.

(AB 273 Section 2)

Brings second lien deficiency actions into line with existing limits on deficiency action by first lender, with addition of deduction of insurance proceeds.

Short Sale – Deficiency Action by First Lien Holder: Statute of limitations for deficiency action after short sale is up to six years from date of last missed payment.

No change to rule unless owner occupied and money used to purchase real property.

If financial institution agrees to short sale with owner occupant who used funds to acquire home, deficiency action is barred where short sale approval letter omits remaining amount due and owing and approval letter contains conspicuous waiver.

(SB 414 Section 3.5)

Law also recognizes six year statute of limitations is applicable unless another limit applies.

(AB 273 Section 5.7)

SB 414 appears to be a substantial change in the law, but might not be a change at all. Short sale approval letters must contain a waiver of deficiency rights in order for the bar on deficiency actions to apply. This is really the same place we were before the statute.

The question whether Nevada’s six year statute of limitations applies to post-short sale first lien deficiency actions has also been resolved – Yes, the limitations period is six years.

Short Sale – Deficiency Action by Second Lien Holder: Statute of limitations for deficiency action after short sale is up to six years from date of last missed payment.

Civil action must be brought within six months after the date of the foreclosure sale.

(AB 273 Section 3.3)

This is a substantial change to the law and welcome relief for borrowers.

Short Sale – Deficiency Action by Second Lien Holder Where Lien Created after June 10, 2011: law did not limit deficiency actions by purchase money seconds.

Lenders are prohibited from seeking deficiency actions against owner occupied purchase money seconds created on or after June 10, 2011.

(AB 273 Section 3)

This change mirrors the change adopted by the special session in October 2009 for first mortgages.

Short Sale – Timeframe for Response to Request for Short Sale: Current law does not address this issue.

Sections 2 and 3 of SB 414 provide that a financial institution must respond to a request for a short sale within ninety days of a request by a borrower.

This new statutory provision gives short sellers some ammunition in the battle for a response from a lender. However, the new statute does not define the penalty for delay. Ultimately this statute is likely to be subject to additional litigation.

LIMITATIONS ON DEFICIENCY ACTIONS

FORECLOSURE

SHORT SALE

FIRST LIEN

6 months after foreclosure sale

NO CHANGE -- 6 YEARS AFTER INITIAL DEFAULT

SECOND LIEN

6 months after foreclosure sale occurring on or after July 1, 2011

6 months after short sale occurring on or after July 1, 2011

LIMITATIONS ON LENDER RECOVERY

FORECLOSURE

SHORT SALE

FIRST LIEN

difference between (a) the greater of the fair market value of the residence or the auction price and (b) the lesser of the amount due under the note or the amount paid for the note by the party seeking the deficiency.

No new limit on recovery(i.e. assignee can recover up to full amount of note, even if assignee paid less than face value)

SECOND LIEN

Cannot recover more than amount paid for note

(applies only to second deeds of trust originated on or after June 10, 2011)

Cannot recover more than amount paid for note

(applies only to second deeds of trust originated on or after June 10, 2011)

Rate this guide


Can’t find what you’re looking for?


Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer