When a property owner defaults on his or her mortgage, the mortgage lender will typically foreclose on the property.
This means, take it away from the property owner and make some attempt to resell it at what is known as a “trustee sale.”
However, sometimes the value of the property is worth less than the outstanding balance still owed on the mortgage. When this happens, the mortgage lender may be tempted to sue the property owner in order to recoup its losses.
Fortunately, there are some protections available to consumers under state “anti-deficiency” laws. An anti-deficiency law is a statute that prohibits or limits the ability of a mortgage lender to sue a property owner for debt owed on a mortgage or deed of trust.
What protections are offered under Las Vegas’s anti-deficiency statutes?
In Las Vegas, anti-deficiency statutes offer some protections to consumers, but the laws are limited in scope. For a consumer to be protected outright from a deficiency judgment in Las Vegas, he or she must meet all of the following criteria:
The foreclosing party is a “financial institution” (i.e. bank, mortgage broker, credit union, etc.).
The property being foreclosed is a single-family residence.
The debtor is the owner of the property at the time of the foreclosure sale.
The debtor used the loan amount (of the mortgage or deed of trust) to purchase the property, and the loan has not been refinanced.
The debtor continuously occupied the property as a principal residence after the mortgage was secured.
For all other types of property, the creditor may still seek a deficiency judgment after the foreclosure sale, but the Nevada Revised Statutes regulate and restrict creditors regarding timing and amount.
What is the “six-month rule”?
First, NRS Section 40.455(1) provides that a creditor has only six months from the date of the foreclosure sale to take action to recover a deficiency judgment. If the creditor fails to file a deficiency complaint within that six month period, the creditor is forever barred from bringing a deficiency judgment.
The Nevada Supreme Court in US Bank v. Palmilla Development Co. (343 P.3d 603 (2015)) made two important rulings on the six-month rule:
That a receiver sale is a foreclosure sale under the definition of the term stated in NRS Sections 40.462(4), which defines the term as “the sale of real property to enforce an obligation secured by a mortgage or a lien on the property…”
That the foreclosure sale is not complete until the purchaser pays the bid amount.
What is the “fair market value rule”?
A creditor in a Las Vegas foreclosure proceeding is limited in the amount it may recover in a deficiency judgment. Specifically, under NRS 40.459(2), a creditor may only recover the lesser of one of these two amounts:
The difference between the debt owed and the fair market value of the property at the time of the foreclosure sale, or
The difference between the debt owed and the amount the property sold for at the foreclosure sale.
The burden of proof falls on the creditor to prove what the “fair market value” of the property is. This is done at a hearing, which is required under Las Vegas law, and at which both the debtor and the creditor will have the opportunity to provide evidence of the property’s fair market value.
A property owner must be given notice of the hearing at least 15 days prior. However, at least 10 days prior to the hearing date, either party may request a court-appointed appraiser to appraise the property’s value at the time of the foreclosure.
This option would be desirable for a debtor who suspects that the property may have been sold for less than its fair market value and this value is less than the amount owed.
To learn more, visit Las Vegas Real Estate Attorneys or call 800-233-8521 for a free phone consultation.