New legislation makes it clear that Nevada has a "consideration limitation" on the amount that a lender can seek in a deficiency action following a foreclosure sale. This article will explain that limitation.
Reports have shown that as many as 85% of residential mortgages in Las Vegas have been "underwater," meaning that the value of the home is less than the debt. The numbers are almost as bad for commercial loans. When you couple this with the poor employment numbers and the decline in income among the employed, tens of thousands of people have lost their home and their business investments through foreclosure.
After the foreclosure, the individual homeowners and the guarantors of commercial loans are still not out of the woods. They face the litigation that comes when the lender sues them for a deficiency judgment.
In a large majority of these cases, the lender filing suit is not the original lender. Instead, they purchased the rights under the note, often for pennies on the dollar. Yet, when they file suit for the deficiency, they are basing it on the full face value of the note.
The 2011 Nevada Legislature concluded that such excessive and unreasonable profiteering by successor-creditors was exacerbating the foreclosure crisis and impeding Nevada’s economic recovery. As a result, they sought to put an end to this.
Among other things, they imposed a consideration limitation on the amount of a deficiency judgment. As a result, a deficiency is limited to the amount by which the consideration paid exceeds the fair market value of the property. Also, the legislation was made effective immediately, so that it would apply to any deficiency judgments awarded on or after the effective date, which was June 10, 2011. The idea was to provide help to Nevadans for this economic crisis, not some hypothetical crisis in the future.
Since most of the initial lenders disposed of their loan portfolios, generally at large discounts, most deficiency cases, or threatened cases, are impacted by this limitation. As a result, this legislation can help you if are facing the threat of a deficiency judgment.
Not surprisingly, the lender lobby is trying to overturn the legislation, and our firm is handling one of the two cases that are in front of the Nevada Supreme Court, which are scheduled for argument on October 1, 2012.
As part of our desire to share information with you about these cases, we have posted a copy of a brief that we filed in connection with the Nevada Supreme Court case. This brief was filed in opposition to the lender’s motion to strike any references to the Statement of Intent that had been published by Assemblyman Marcus Conklin, the sponsor of the bill. In our brief, we refute the various lender arguments that were made to misconstrue the intent of the legislature. You can read the Opposition to Motion to Strike by clicking here: http://foleyoakes.com/nevadalaw/deficiency-judgments-in-nevada/
We think these arguments put to bed any notion that the law was intended to be narrowly applied or that it should apply only in the future. The obvious intent of the Legislature was to provide broad relief to all Nevadans now.
If you are in a position where you could be affected by this law, we may be able to help you, so we invite you to contact our office and set up an appointment.