In the state of Nevada, if you undergo a foreclosure and it does not sell for as much as the remaining balance of your mortgage, then the bank, or what is commonly referred to as the foreclosing party can come after you for the difference.
However, you should know that there are limits when it comes to a deficiency judgement, and even in certain situations, the foreclosing party cannot get a deficiency judgment whatsoever.
Today, we are going to dive deeper into what states allow deficiency judgments, when the foreclosing party can get one in Nevada, and what are the limitations here in the state of Nevada.
What’s a Deficiency Judgments After Foreclosure?
When your home gets foreclosed one, typically the debt that you owe will always exceed what the foreclosure sale price is. So, the difference between the total debt and the sale price is known as the deficiency.
Prime example is let’s say you owe $200,000, but the foreclosure sale price is at $150,000. The deficiency here is going to be $50,000.
However, in some states, including Nevada, the foreclosing party also known as the bank can decide to take out a personal judgement against you, the debtor to recover the deficiency.
If the bank is successful, they can collect this money from garnishing your wages or even going as far as levying your bank account.
Nevada Deficiency Judgments
Majority of the foreclosures that will happen in Nevada will be nonjudicial. This typically will mean that the bank or the foreclosing party is not required to go through the courts to finalize the foreclosure.
However, in the event of a judicial foreclosure, the bank will be required to go through the court system.
What is the Limitation When it Comes to the Deficiency Judgements?
In the state of Nevada, the bank can get a deficiency judgement during 6 months after the foreclosure is finalized, but the amount of the deficiency has a limit and needs to be lesser of the following:
- Difference from the fair market value of the house and the total debt owed
- Difference between the foreclosure sale price and the total debt owed
There will be a court hearing that will determine the fair market value of the home. Before the court will award the deficiency judgement, they will be required to have a hearing to obtain the evidence from the borrower (you) and the foreclosing party (bank) that is about the fair market value of the home as of the date it was sold.
The foreclosing party is required to give you the borrower at least 15 days’ notice of this hearing. The court will then appoint an appraiser to go out to the home in question to appraise the property.
You should also notate that there will be some deficiency judgements that will not be permitted. When a deficiency judgement is not permitted it has all the following:
- The foreclosing party is a financial institution
- The loan was a purchase-money loan and it was never refinanced
- The property was a single-family home
- The property is the borrower’s principal residence once they obtained the loan
- The borrowers have continuously occupied the property as their principal residence, and the loan was obtained on or after October 1, 2009. (Nev. Rev. Stat. § 40.455).
Can the Banks of HELOCS, Junior Liens, and Second Mortgages Also Come After You?
Typically speaking when your senior lien holder forecloses on you, any of the junior liens will also be foreclosed as well. These junior liens will end up losing its security interest in the real estate property.
So, if the junior lienholder has been managed in such a way, that lienholder has every right to come and sue you on the grounds of the promissory note.
So, in short, if the equity in your home will not cover your second or third mortgage, you can potentially be facing lawsuits directly from those banks to collect the remaining balance from those loans.
Court Hearing To Establish Fair Market Value
Before awarding a deficiency judgment, the court will hold a hearing to receive evidence from the lender and the borrowers concerning the fair market value of the property as of the date of foreclosure sale. The lender must give the borrower notice of the hearing 15 days prior to the hearing. The court will appoint an appraiser to appraise the property if the lender or borrowers make a request at least 10 days before the hearing date (Nev. Rev. Stat. § 40.457).
The One Action Rule
In some cases, the bank can ignore the lien of the debt on the property and sue in the Court on the mortgage note that the homeowner signed. This is an action on the debt and not a property foreclosure. These actions are never available where the creditor would be barred on any deficiency had the creditor simply foreclosed and even where there is a potential deficiency, these actions may still be barred unless they meet certain criterion. The purposes behind the One Action Rule and the deficiency-judgment statutes are to protect homeowners and prevent the banks from suing the homeowner and receiving a judgment and then foreclosing on the home, in effect double recovery.
The one action rule limits the creditors to a single action for debts related to a single property, that is to say, they cannot initiate both a foreclosure on the property and an action on the note and where there is the chance under the loans to do both, the creditor is directed to first realize against the security, compelling the creditor to first offset the debt with the property.
Where the creditor holds both the first and second title position loans and both were for purchase of the property, it prohibits the creditor from foreclosing on the first loan against the property and waiving the security and suing for the second loan on the promissory note—essentially prohibiting the creditor from taking two actions.
Bankruptcy And Deficiency Judgments
Filing for bankruptcy to obtain relief from a deficiency judgment is possible. Under a Chapter 7 bankruptcy, all personal liability on the mortgage note is extinguished so that the bank cannot pursue you for any deficiency that may arise from a foreclosure sale.
How Deficiency Judgments Are Collected?
A deficiency lawsuit is like a lawsuit to recover an unsecured debt, like credit card debt or medical bills. Before the foreclosure, your mortgage was a secured debt you owed your bank a certain amount of money and your home guaranteed repayment.
If you failed to pay back your mortgage loan, the bank had the right to sell your home to recoup the debt. After foreclosure, you may still owe your bank some money (the deficiency), but the security (your house) is gone. The deficiency is now an unsecured debt.
If your lender sues you to recover the deficiency and wins, the court will issue a judgment ordering you to pay off the deficiency. If you ignore this court order, your lender can use the deficiency judgment to place liens on other property that you own, garnish your wages, or freeze your bank accounts. Please see our Debt Collection page for more information on how to protect your exempt property from collection.
What If You Can Not Pay The Deficiency ?
If you cannot afford to pay the deficiency and you want to avoid having your wages garnished or your accounts frozen, talk to your lender. See if they are willing to work out a repayment plan with you. Also, you may want to consider filing for bankruptcy. If you qualify for Chapter 7 bankruptcy, it could wipe out the deficiency debt, along with your other unsecured debts. Under a Chapter 13 bankruptcy, you may have to repay just a small portion of the deficiency.
How To Avoid Liability For A Deficiency?
If you are behind on your mortgage payments and you do not wish to keep your home, you should contact your mortgage servicer to find out if you are eligible for foreclosure alternatives, such as a short sale or deed-in-lieu of foreclosure.
Through a short sale, your lender approves the sale of your home for less than you owe on your mortgage. The difference between the sale price and the total debt amount is the deficiency. You must ask for a deficiency waiver as part of the short sale.
Through a deed-in-lieu of foreclosure, you sign your home over to your lender, and in exchange your lender foregoes foreclosure and releases you from your mortgage. The deficiency amount under a deed-in-lieu of foreclosure is the difference between the fair market value of the property and the total debt.
Whether you pursue a short sale or deed-in-lieu of foreclosure, you should ask your lender to agree in writing to release you from liability for any remaining debt. Please be aware, though, that there may be income tax consequences for cancelled debt. Please see our Tax Liabilitiy of Forgiven Mortgage Debt page for more information.
Where Can I Find the Deficiency Judgements in the Nevada State Law?
The statutes you will want to get to know in the Nevada State Law will be §§ 107.080 to 107.100 along with §§ 40.455 to 40.463.
When is it Time to Talk to an Attorney?
If you are a homeowner in the state of Nevada and you are currently about to go through a foreclosure and you need to learn more about how everything works, and whether or not you have any defenses against the foreclosure, you should highly consider to talk to an expert foreclosure attorney. If your budget cannot stretch for an attorney, you can also try and contact a HUD-approved housing counselor as well.