Deficiency Judgements in Nevada?

Mortgage Forgiveness Debt Relief Act of 2007

U. S. legislation affecting short sales of residential property.

Mortgage Debt Relief Act Extended until 12-31-13

Great News… The Mortgage Debt Relief Act of 2007 will be extended for one year.

On January 1, 2013 the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff,” the bill will be signed by the President on January 2, 2013.

Here is the text from H.R.8:

SEC. 202. EXTENSION OF EXCLUSION FROM GROSS INCOME OF DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.

(a) IN GENERAL.—Subparagraph (E) of section 108(a)(1) is amended by striking ‘‘January 1, 2013’’ and inserting ‘‘January 1, 2014’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to indebtedness discharged after December 31, 2012.
Download and read the NAR Issue Brief regarding Real Estate Provisions in “Fiscal Cliff” Bill

Foreclosure Law Firms

Nevada Foreclosure Deficiency Law

NEW FANNIE MAE & FREDDIE MAC RULES FOR DEFICIENCY – EFFECTIVE NOVEMBER 1, 2012

****Effective November 1 HAFA II – New Fannie, Freddie Short Sale Guidelines in full effect****

No required missed payments to have your short sale approved under certain hardships. This is an important change because the MISSED payments prior to a short sale are what kill credit scores much more than the actual short sale.

These hardships include: The death of an owner; Divorce; Disability; Relocation more than 50 miles for a job transfer or a new job.

No More deficiency judgments IF:

Fannie Mae and Freddie Mac will waive the right to go after borrowers for the “deficiency” if the homeowner agrees to pay part of the deficiency or sign a promissory note promising to pay some of it. To avoid a deficiency judgment the borrower would want to agree to pay a negotiated amount (20% of liquid assets is what they will ask for) on a Prom. Note at low (or no) interest up to 15 years. Keep in mind they will be looking at tax records and credit reports for assets, capital gains/losses, money market funds, interest, dividends and NEW lines of credit including new mortgage liens.

Paying off Second LienHolders

Fannie Mae and Freddie Mac will pay up to $6,000 to second lien holders to speed up the short-sale process. This was $8500 but has been lowered.

What is the liability for the Deficiency AFTER a Foreclosure or Short Sale?

6 Months

Foreclosure – The foreclosing lender has the right to sue the home owner after the foreclosure for the difference between the amount gained at the ‘trustee sale’ discussed above and the balance of debt owed. The lender has only 180 days (six months) from trustee sale to file, after that the owner is no longer liable.

6 Years

Foreclosure 2^nd Deeds – All deeds that are junior to the foreclosing lender have different rights than the foreclosing bank. These lenders are called ‘sold off junior lien holders’ and they have six (6) years to recoup their debt. That means you get foreclosed on November 12, 2009, these junior lien holders have until November 12, 2015 to sue you.

Short Sale – All lenders that agree to a discounted payoff and ‘release the lien’ from the property to allow the short sale are no longer ‘secured lenders’ and are now ‘sold off junior lien holders’ as described above and have six (6) years to sue you. UNLESS, the short sale is negotiated so the lender releases the homeowner from any future liability as to the forgiven debt. Many lenders are taking a hard stance on this issue and NOT fully releasing and satisfying the forgiven debt.

Every short sale real estate transaction has unique terms, considerations and situation. In a nutshell, during a Short Sale the lenders (1st or 2nd) have 6 years to pursue a deficiency judgment UNLESS whoever is negotiating on behalf of the seller (listing agent, attorney, 3rd party licensed Short Sale negotiator) is able to have the proper language included in the Short Sale approval from the bank/lender.

New Information on Deficiencies…

Under Section 3 of AB 273, a lender may not collect a deficiency remaining on a second mortgage if it was taken out after June 10, 2011. This law will apply if (1) the lender is a financial institution; (2) the real property is a single-family house; (3) the homeowner owned the property; (4) the borrower used the loan to purchase the property; (5) the homeowner lived in the property and (6) did not refinance the loan. Section 3 also expands the protection afforded to homeowners by prohibiting collection of deficiencies on an eligible second mortgage after a foreclosure sale, trustee sale, short sale and deed in lieu of foreclosure, protecting Nevadans who cooperate with the banks and try a short sale or deed in lieu of foreclosure but are not released from the deficiency.

Homeowners won’t have to wait for six years to find out if they are going to be sued to collect on their second loan. Section 3.3 states that a junior lienholder must file a lawsuit to recover a deficiency within six months after a foreclosure sale of the house, a short sale or a deed in lieu of foreclosure that occurs on or after July 1, 2011.

The new law states that the lender will not be allowed to collect from both the insurance company and the homeowner. Section 2 of AB 273 directs judges to subtract the amount of proceeds received by, or payable to, the holder of a second mortgage from an insurance policy from the amount owed by the homeowner. The laws in Section 2 will only apply to second mortgages taken out after June 10, 2011.

Updated Deficiency information – 7/2011

Note: New laws do not impact First mortgage loans for short sales – unless the deficiency judgment is successfully negotiated in the short sale, the lien holder has 6 years to pursue a deficiency judgment after a short sale.

SB 314 is a very interesting bill and many are jumping the gun on deciding what this bill is saying. This bill impacts REO listing agents and discusses seller may not require a buyer waive their right to SRPD. Gayle Anderson from the NV Real Estate Division is working on implementing this bill. Cheryl Smith spoke with Teresa Mckee, NVAR legal counsel and this is one of those bills passed and now the real estate division has to figure out how it will work. This will become effective 10/1/11.

SB140 prohibits the use of a cell phone effective July 1, 2011 without the use of a hands free devise. You cannot text, IM, or browse the internet. This is considered a primary offense meaning you can be pulled over and cited. Warnings will be given until January 1, 2012 when they will begin issuing citations.

SB403 will make sure the Demand Letter from the HOA is good for 15 days.

SB 414 makes it a misdemeanor for the bank to unreasonably withhold short sale approval. It spells out that acceptance or rejection of an offer should be received within 90 days. It also prohibits a bank from getting a deficiency judgment if they agreed to a short sale (under certain circumstances). Personally, I am not sure how this can be enforced against out of state banks, etc.

IMPORTANT – ONE MINUTE ANALYSIS

AB 273‐ Deficiency Judgments Junior Lienholders and Guarantors

This “One Minute Analysis” is intended to encapsulate AB 273 in a nutshell. Link to AB 273
The most difficult part of this bill is tracking who is covered by it under each section. Sections 2, 3 and 3.3 talk about “junior mortgage or lien”:
Definition of “obligation secured by a junior mortgage or lien upon real property”… Because we are dealing with a debt that exists after a foreclosure, the debt, really, is no longer secured. So paragraph 3 of section 2 provides that what we are talking about is ALSO the obligation that exists in favor of a creditor who once held a SECURED junior obligation. IF it was formerly a secured junior debt, then this bill applies to that debt.
Section 2 If a junior lien holder:

Files a civil action for a money judgment after a property is foreclosed
And is not barred by the one action rule (this is a complex rule that will be determined by a court, and is not an analysis or advice that any agent should be giving their client)

Then a court has to look at whether the creditor got money from any kind of insurance for losses related to the debt.

AND

If the creditor purchased the debt (such as a collection agency) the court can only allow an amount that the creditor paid for the debt plus interest and costs.
This section is not limited to residences, but does apply ONLY to obligations (debts) incurred after June 10, 2011. Effective June 10, 2011.
Section 3‐ The holder of a junior debt may NOT go to court to get a deficiency judgment after a foreclosure or short sale (or deed in lieu of foreclosure) if:

The holder of the debt is a “bank”
The property is an owner occupied residence
The debt was used to purchase the home
The owner continuously occupied the residence AND
The owner did not refinance the debt

This section IS limited to residences, but does apply ONLY to obligations (debts) incurred after June 10, 2011. Effective June 10, 2011.

Section 3.3‐ The holder of a junior debt (as defined above) MAY go to court to get a deficiency judgment after a foreclosure or short sale (or deed in lieu of foreclosure) if it isn’t covered under Section 3, and if it is not barred by the one action rule (a complex rule, see above note) BUT ONLY WITHIN 6 MONTHS of the foreclosure, short sale or deed in lieu.
This section is not limited to residences, and applies to any obligations (debts), whether incurred before or after June 10, 2011, but is effective July 1, 2011. See Effective Dates below.

Note: Current law provides that for senior mortgages and liens on real property an action for a deficiency judgment must be commenced (filed) within 6 months after the foreclosure sale. And for obligations incurred after October 1, 2009, a court may not award a deficiency judgment on the senior mortgage or lien if the creditor is a bank, the property is an owner occupied residence, the loan was for the purchase of the home, the property was continuously occupied and the loan was not refinanced. (The same requirements under Section 3 above)

Section 5‐ In a civil action for a deficiency judgment brought by a person that purchased the right to pursue the deficiency (for instance a collection agency that pays a bank $150,000 for a $200,000 note for a defaulting loan on a house worth $120,000 that sells for $100,000 at foreclosure) the court can only award the greater of (Purchase minus FMV= $150,000 minus $120,000= $30,000) or (Purchase minus Actual Sale Price $150,000 minus $100,000 = $50,000) plus interest. The bank, had it kept the note would have been able to recover $200,000 minus FMV or Actual Sale Price.
This section is not limited to residences, and applies to any obligations (debts), whether incurred before or after June 10, 2011. Effective June 10, 2011.
Section 5.5‐ GUARANTORS‐ If before a foreclosure sale the creditor files a civil action against a guarantor of a mortgage, then

The court must hold a hearing to determine the Fair Market Value of the real property
After the hearing, if the court may NOT award a money judgment for more than
The amount the debt exceeds the FMV OR
The amount the debt exceeds the sale if the foreclosure sale is held before the court issues a money judgment.

This section is not limited to residences, and applies to any obligations (debts), whether incurred before or after June 10, 2011. Effective June 10, 2011.

Section 5.8‐ Gives a list of who may be a trustee under a deed of trust and describe persons who are exempt from the requirement to obtain a license, and other items regarding trustees.

EFFECTIVE DATES

Sections 1‐3 apply only to obligations (debts) secured by real property on or after June 10, 2011. In other words the debt has to be actually incurred after June 10 to be covered by this section of law.
Section 3.3 applies only to civil ACTIONS commenced (filed) after the foreclosure sale or short sale or Deed in Lieu that occurs after July 1, 2011. This applies to debts incurred before and after June 10, the important date is the sale date.
Section 5.5 applies only to a civil action against a guarantor commenced (filed) on or after June 10, 2011.
*This ONE MINUTE ANALYSIS is an abbreviated synopsis of a bill. Link to AB 273 If this bill pertains to you or your client, please read the language in full and consult an attorney. Do not give legal advice to your clients as to whether a deficiency may be granted.
Statements made by the NVAR Information Line attorneys on the telephone, in e-mails, or in legal e-news articles are for informational purposes only. NVAR’s staff attorneys provide general legal information, not legal representation or advice regarding your real estate related questions. No attorney-client relationship is created by your use of the Legal Information Line and any information you receive you should not act upon this information without seeking independent legal counsel. Information given over the Legal Information Line or in these articles is for your benefit only. Do not practice law! Inform your clients they must seek their own legal advice.

SB 414‐ Deficiency Judgments and Short Sale Response

This “One Minute Analysis” is intended to encapsulate SB 414 in a nutshell. Link to SB 414
Section 3 A Bank may NOT “unreasonably delay” responding to an offer for “sale in lieu of foreclosure” of a residence. (90 days unless otherwise agreed). “Sale in lieu of foreclosure” includes short sales and deeds in lieu of foreclosure or any other sale where the sales price does not pay the debt and costs of sale.

Section 3.5 The court MAY NOT award a deficiency judgment to a bank IF:

The property is a single family owner occupied residence
The debt is purchase money debt (this means that the loan was used to buy the home, not refinanced or used to buy vehicles or other property)
The owner continuously occupied the residence
The owner and bank entered a short sale agreement that:

a. Is silent on two things

i. The amount of money still owed (deficiency amount)

ii. Language authorizing the bank to recover a deficiency
AND

b. Is specific on two things

i. A conspicuous statement that the bank has WAIVED the deficiency and
ii. Sets forth the amount being waived.

Two Scenarios (examples of 4a and 4b):
4(a)‐ Short Sale agreement #1: states that the Owner owes a deficiency of $50,000 that the bank may recover. In this case, Bank MAY be granted a deficiency judgment by a court.
4(b)‐ Short Sale agreement #2: states that the Bank waives a deficiency of $50,000. In this case, Bank may NOT be granted a deficiency judgment by a court.

Effective June 13, 2011.
This ONE MINUTE ANALYSIS is an abbreviated synopsis of a bill. If this bill pertains to you or your client please read the language in full and consult an attorney. Link to SB 414 Do not give legal advice to your clients as to whether a deficiency may be granted.
Statements made by the NVAR Information Line attorneys on the telephone, in e-mails, or in legal e-news articles are for informational purposes only. NVAR’s staff attorneys provide general legal information, not legal representation or advice regarding your real estate related questions. No attorney-client relationship is created by your use of the Legal Information Line and any information you receive you should not act upon this information without seeking independent legal counsel. Information given over the Legal Information Line or in these articles is for your benefit only. Do not practice law! Inform your clients they must seek their own legal advice.