Terrie ... This is a great post about the new law changes in Nevada ... Short Sales ... Deficiencies ... and Foreclosures! Lots of changes in the air for those of us in involved in Nevada Real Estate. You did a great job listing and explaining the differences! Thanks, it will be very helpful!
The 2011 Nevada State Legislature Session ended with several bills, already signed into law by Nevada's Governor Brian Sandoval, that will impact the real estate industry, in particular short sales and foreclosures.
A bill that many homeowners in Nevada will most likely be interested in is AB 273. This bill is indented to prevent banks from "double dipping" and going after homeowners once a settlement between the borrower and lender has been reached.
It is also intened to reduce the amount of time a junior lien holder has to file for a deficiency from the current six years to six months and it will cap the amount a third party can be awarded if they bought the right to the deficiency for pennies on the dollar. (Often times a lender will sell the note during the short sale process for less then what the borrower owes and then the agency that buys this note will try to go after the borrower for the full amount.)
- AB 273 prevents banks from going after borrowers for the "full amount" of a deficiency that is owed on their mortgage loan when lenders have received compensation from other sources.
- AB 273 also protects homeowners by limiting the amount of money a bank can collect after a homeowner looses their home.
- AB 273 also reduces the amount of time a bank has to file a lawsuit against some homeowners.
Under current Nevada law, a lender may not collect a deficiency in court on first mortgages taken out after October 1, 2009. Under section 3 of AB 273, extends those protections to second mortgages taken out after June 10, 2011.
Section 3 also expands the protection to homeowners by prohibiting collections of deficiencies on an eligible second mortgage after a short sale, trustee sale, foreclosure and deed-in-leiu of foreclosure.
This will protect those Nevadans who cooperated with banks to try to short sale their home but were unsuccessful. This is a great protection for homeowners who worked with their lender to prevent their home from a foreclosure but not able to save it. Showing good faith should not be a punishment.
The Nevada Legislature also took steps to protect homeowners from having to pay the full amount owed after a foreclosure when the bank has already collected insurance payments on the loan. 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 the holder of a second mortgage from an insurance policy from the amount owed by the homeowner. The laws will only apply to second mortgages taken out after June 10, 2011.
NRS 40.455 states that the holder of a mortgage has to sue to collect a deficiency within 6 months after the foreclosure sale or trustee sale. The new law, AB 273, states that holder of a second mortgage must sue within 6 months for deficiencies resulting from a foreclosure sale, trustee sale, short sale or deed in lieu of foreclosure. This is how the laws work together:
- First mortgage loans – Deficiency collection lawsuits must be filed within six months after a foreclosure sale.
- First mortgage loans – Deficiencies can only be collected on first loans taken out BEFORE October 1, 2009. First loans taken out after that date are non-recourse loans.
- Second mortgage loans – Some collection lawsuits must be filed within six months. The six month limit on deficiency collections only applies to foreclosure sales, trustee sales, short sales and deeds in lieu of foreclosure that are sold or have sales closed AFTER July 1, 2011.
- Second Mortgage loans – Deficiencies can only be collected on second loans taken out BEFORE June 10, 2011. Second loans taken out after that date are non-recourse loans.
Most of the above revisions are for loans taken out after a specific date and will not apply to all mortgages. None the less I do believe the Nevada Legislature has taking huge steps in to help protect Nevada homeowners from unfair lawsuits after the lost of their home.
If you are interested in learning more about the new AB 273 law, read the Nevada Legislature report. Additionally, read the Las Vegas law blog of Black and LoBello for information relating Nevada Law and Real Estate.
Nevada Legislative Updates for Short Sales & Foreclosures AB 273