If you go through a Nevada foreclosure, the sale may result in a shortfall. Find out whether a lender in Nevada may get a deficiency judgment following a foreclosure.
If you go through a Nevada foreclosure, the foreclosure sale may result in a shortfall. (When the foreclosure selling price does not meet the amount of the borrower’s mortgage obligation, the difference is referred to as a “deficiency.”)
If a foreclosure sale results in a shortfall, the lender may get a “deficiency judgment” against the borrower in most states, including Nevada. However, Nevada law restricts the amount of the deficit if the property’s fair market value exceeds the foreclosure sale price, and in some cases, the lender is barred from obtaining a deficiency judgment entirely.
The Process of Foreclosure Sales
If you fail on your mortgage loan, the lender might sell your property via a legal procedure known as “foreclosure” to satisfy the unpaid amount. After the lender has met all of the legal conditions for foreclosure, the last stage in a judicial or nonjudicial foreclosure is the foreclosure sale, in which the house is sold at a public auction to a new owner.
The foreclosing lender makes the initial offer at the auction, known as a “credit bid.” A credit bid provides the lender with credit in the amount of the borrower’s debt. The lender has the option of bidding up to the complete amount of the debt, including foreclosure fees and charges, or bidding less. Because no one else offers, the lender usually makes the highest bid during the auction and becomes the new owner of the property. If the lender purchases the property during the sale and obtains title, the property is termed “real estate owned” (REO).
At foreclosure auctions, lenders often bid less than the whole amount of a borrower’s mortgage obligation.
After a Foreclosure Sale, What Is a “Deficiency Judgment”?
When a lender takes possession of a property via the foreclosure process, and if state law permits it, the lender might pursue a personal judgment against the borrower to collect any deficit. A “deficiency judgment” is a kind of money judgment. As part of the judicial foreclosure procedure in certain jurisdictions, the lender may seek a deficiency judgment. In certain areas, the lender must sue the borrower separately after the foreclosure to get a deficiency judgment.
However, if the selling price is equal to or more than the mortgage debt amount, you are not liable since there is no deficiency—even if the lender is unable to resell the property for the same amount after the foreclosure sale. In fact, if the sale resulted in a surplus of funds, you may be entitled to that additional cash after the foreclosure auction. However, if the residence has any junior liens, such as a second mortgage or HELOC, or if a creditor lodged a judgment lien on the property, those parties get the cash to settle the amount owing. The funds remaining after paying off these obligations then go to the foreclosed homeowner.
Deficiency judgments are sometimes limited by state law.
Deficiency judgements are occasionally subject to limitations under state law. Some jurisdictions limit the amount of a deficiency judgment, such as requiring the borrower to get credit for the home’s fair market value if the foreclosure sale price is less. In other words, while computing the shortfall amount, the property’s fair market value is substituted for the foreclosure sale price.
Other states impose time restrictions for lenders to obtain a deficiency judgment against a borrower, ranging from three months to one year following the foreclosure sale. (Speak with a foreclosure lawyer in your state to learn the time restriction in your state.) Furthermore, different jurisdictions have different procedural criteria for obtaining a deficit judgment, and some states do not allow deficiency judgments in certain instances, such as following nonjudicial foreclosures.
How Do Lenders Get Deficiency Judgments?
In general, if a lender obtains a deficiency judgment, it may collect the amount (in the case above, $50,000) from the borrower by traditional collection tactics such as wage garnishment or levying a bank account.
Even if your lender obtains a shortfall judgment, you may very certainly discharge your responsibility for a deficiency judgment, along with many other dischargeable debts, in a Chapter 7 or Chapter 13 bankruptcy.
Will My Lender File a Deficiency Judgment Against Me?
Even though your lender has the legal authority to pursue you for a deficiency judgment, it may choose not to do so, particularly if you don’t have a lot of assets to fulfill the judgment. The lender may determine that it is not worth the cost and effort of obtaining a deficit judgment.
Nonetheless, you should be aware of the possibility of your lender pursuing you for a deficit following a foreclosure. Furthermore, even if the lender chooses not to sue you for a deficiency judgment, it may subsequently transfer the loan to a debt buyer, who may later sue you for the deficit.
Following Nevada Foreclosures, Deficiency Judgments
The majority of Nevada foreclosures are nonjudicial, which means the lender does not have to go through state court to foreclose. (In Nevada, the lender might also seek to foreclose via the state court system, which is known as a “judicial foreclosure.”) However, in jurisdictions where a nonjudicial procedure is available, lenders nearly invariably adopt it since it is fast and affordable.)
Because Nevada foreclosures are usually nonjudicial, this page concentrates on the laws that govern that process.
Nevada Limitations on Deficiency Judgments
A lender may get a deficiency judgment in Nevada by bringing a lawsuit within six months after a foreclosure, however the amount of the judgment is restricted to the lesser of:
the difference between the borrower’s entire debt and the home’s fair market value at the time of sale, plus interest; or the gap between the borrower’s total debt and the foreclosure selling price, plus interest. Nevada Revised Statute 40.459.
If the person requesting the deficiency judgment obtained the right to obtain the judgment from a former owner, the judgment is restricted to the lesser of:
the difference between the consideration paid and the property’s fair market value at the time of sale (plus interest from the date of sale and reasonable fees) (plus interest from the date of sale and reasonable costs).
This restriction applies to loans taken out after June 10, 2011. Nevada Revised Statute 40.459.
How the Court Determines the Fair Market Value of Property
Before issuing a deficiency judgment, the court will schedule a hearing to hear evidence concerning the property’s fair market value as of the foreclosure sale date from both the lender and the borrower. The lender is required to provide the borrower 15 days’ notice of the hearing. On its own initiative or if the lender or borrower asks it, the court will appoint an appraiser to assess the property at least ten days before the hearing date. Nevada Revised Statute 40.457.
When Are Deficiency Judgments In Nevada Prohibited?
Under Nevada law, the lender cannot obtain a shortfall judgment against the borrower if all of the following conditions are met:
A financial institution is the lender.
The borrower utilized the mortgage loan to purchase the property, and it was not refinanced.
The property is a single-family dwelling that the borrower owned at the time of the foreclosure sale; the borrower used the property continuously as a main residence after receiving the loan; and the loan was received on or after October 1, 2009. Nevada Revised Statute 40.455.
What Happens to Second Mortgages, Home Equity Lines of Credit, and Other Junior Liens?
When a senior lienholder forecloses, any junior liens, such as second mortgages and HELOCs, are likewise foreclosed, and the junior lienholders lose their security interest in the real estate. Junior lienholders are frequently referred to as “sold-out junior lienholders” in this case. However, this does not imply you do not owe money to junior lienholders.
Assume a junior lienholder is sold out in this fashion, and the profits of the foreclosure auction are insufficient to cover what you owe to that junior lienholder. In such instance, the junior lienholder may sue you personally on the promissory note of the loan. So, if the equity in your property is insufficient to satisfy second and third mortgages, for example, you may face litigation from those lenders to collect the remaining balances.
Obtaining Foreclosure Assistance in Nevada
Consider speaking with a foreclosure attorney if you have concerns regarding Nevada’s foreclosure procedure or want to learn about viable foreclosure defenses and maybe challenge the foreclosure in court.