The economic situation in Las Vegas, specifically the downward spiral of the housing market, has left many Nevada residents and those owning property here in the same situation asking the same questions. This page is meant to answer many of the most frequently asked questions. The following is not to be construed as legal advice. 

I want to let my house go to foreclosure, what can happen to me?

For loans initiated prior to October 1, 2009, the lender can seek a judgment for any balance owed after a foreclosure. A deficiency judgment must be obtained within 6 months after the foreclosure sale. The deficiency judgment can be obtained by application to the court and usually there is little to no defense. The sole issue is did the home sell in foreclosure for less than what was owed? If the answer is yes, the difference is the amount plus fees and costs.

I have a second mortgage, what can they do after a foreclosure?

Before just recently, a junior lien holder acting as the non-foreclosing party had up to six years to seek a judgment. The additional time beyond the six months that is allowed for the seeking of a deficiency judgment was allowed because this technically was not a deficiency judgment, but rather a separate breach of contract action.

AB 273 changed the law to make the six month timeframe also apply to junior lien holders. This means that after a foreclosure, all lien holders now have only six months to obtain a deficiency judgment or they have waived that right.

I am worried about a judgment and how it may affect me; other assets.

If you reside in a state other than Nevada, you need to contact an attorney in your home state as to how judgments are enforced. Every state is different and even if a judgment is obtained in Nevada relating to property owned here, if you reside in another state ultimately that judgment would be registered and collected where you reside and be subject to the laws of that state.

If you reside in the State of Nevada, there are three main ways civil judgments are enforced. Wage garnishment, bank levy, and liens on real property.

To garnish ones wages they first would need to find out where you were employed, and then serve a writ of garnishment on the employer. A bank levy is basically the same process but they would need to know where you bank at. Liens on real property usually occur by recording the judgment in the county where you reside. This judgment then acts as a lien on any property that is in your name. If you attempted to sell any real property, you could be forced to pay the lien to be able to offer clear title. Homestead laws may protect some real property assets from outside attachment.

Collecting on judgments can be difficult for a creditor but it is important to note that an aggressive creditor can request a debtor’s examination and require you to appear before the court to answer questions related to your assets, bank accounts, and employment. Failure to comply with this request could result in you being found in contempt of court, which has penalties that can include jail time.

Will my lender pursue a judgment against me after a foreclosure?

There is no way to know the answer to this question based on who your lender is or any other information. It is an unknown and unless they have agreed specifically not to pursue a deficiency judgment, then there is always a possibility that they will.

Is a short sale better than a foreclosure?

The short answer to this question is yes. As to how they each affect your credit score, it may end up being the same. In short sales, it is not the short sale that has a dramatic effect on your credit; it is usually the missed payments that accompany. We have done short sales with no missed payments and the client’s credit score only dropped less than 50 points. Unfortunately short sales without missed payments are not very common.

So if on average the impact on a credit score is the same, why is a short sale better than a foreclosure? Many employers run credit checks prior to hiring and bankruptcies and foreclosures are generally things that are labeled as “irresponsible”. Security clearances can also be affected by foreclosures. Short sales are not specifically notated on a credit report; instead the account is usually marked as “settled” or “paid in full for less than agreed”. The difference between the two goes beyond the actual credit score.

Additionally, many lending applications specifically ask if you have had a bankruptcy or a foreclosure over a specific period of time. A short sale is not a standard question on these applications.

Can the lender pursue the deficiency after a short sale?

Under a government short sale program like HAFA, the lender must forgive any deficiency. In a traditional short sale the lender is not required to forgive the deficiency but in many cases they do. Sometimes the lender may ask for a cash contribution.

A junior lien holder also can pursue the deficiency after a short sale but again, usually an agreement can be made to settle the account permanently.

If either the primary mortgage or the secondary mortgage agrees to the short sale but specifically reserves their right to pursue the deficiency amount or asks you to sign a promissory note for some or all of the deficiency, they may intend to seek collections post-sale. If this happens it is up to you as to whether or not you agree to the terms.

The creditor can simply put the account with a collection agency and hope for some sort of payment, or they could file a civil complaint and seek a civil judgment. Without an actual judgment, the creditor would not be able to do anything beyond what standard collection agencies do, basically harass for payment. If they did decide to expend the funds to file a complaint in district court and obtain a civil judgment, they would have the judgment collection options outlined in an above section.

I have heard there are tax consequences with a foreclosure/short sale.

After a short sale or a foreclosure you may be given a 1099C, which is a cancellation of debt. The IRS considers cancelled debt as income and requires you claim it as such on your yearly tax return.

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation allows you qualify for an exclusion from this income if you meet the criteria. The main criteria are that it must relate to your primary residence. For more information on tax consequences of a short sale or a foreclosure, contact an accountant or CPA or visit the following link:

http://www.irs.gov/individuals/article/0,,id=179414,00.html

 After a short sale/foreclosure a judgment has been obtained against me, what can I do?

The easy answer to this question is file bankruptcy. A bankruptcy action will discharge a civil judgment. It is the only mechanism that will make the judgment “go away”. There is no other magic wand answer to rid the judgment. You could possibly contact the creditor and ask for a payment plan or a settlement amount but if your goal is to not pay them anything, you would need to consider bankruptcy or possibly be exposed to collection efforts.

Asset protection could be available to protect yourself and your assets from a judgment but no asset protection is 100% guaranteed. Asset protection includes things such as offshore bank accounts, having property in the name of a family trust etc. Asset protection can also be risky because if the creditor shows the court that assets were moved to avoid judgment collection, the court could order the assets returned. We have had cases where a person “sold” property to another individual and the court concluded the sale was not legitimate and ordered the property turned over to the judgment creditor.

Transferring property or other assets solely to avoid a judgment can be reversed by the court and is considered improper.

A foreclosure has occurred, now they want to evict me. What can I do?

You will need to move. Many people are not aware of how fast evictions occur in Nevada and it is important to note that if you are not paying your mortgage and moving towards foreclosure at some point you will be evicted and if the lender chooses, this eviction can happen to you in as little as three days.

After a foreclosure, you will be considered as an unlawful detainer and have no rights to remain in the home. Some lenders offer rental agreements to former owners or cash for keys incentive programs but these are not required.

Do I need an attorney to do a short sale?

No. An attorney is not required. Many people choose to hire an attorney to do the negotiation of terms with the lender and handle all of the short sale qualification requirements.

Our office usually works in connection with a real estate agent, either one our office is familiar with or one the client chooses, and works toward listing the property and receiving an offer and purchase agreement. From there, we open negotiations and submit the required documentation to the lender to attempt to gain approval. The process usually takes 30-90 days.

I heard from a friend or read on the internet that banks were doing illegal things and I don’t have to pay my mortgage anymore

The above question is a simplification of a large amount of inquiries we receive that are predicated on things or theories people hear or read about that imply they may not be responsible for their mortgage any more, can stop paying and be immune from foreclosure, or perhaps can sue their bank to receive some sort of damages.

Simply put, there is no truth to any of these. There have been stories in the news about misdoings by lenders and lawsuits commenced etc. However, these cases are anomalies that usually have extreme circumstances of illegal conduct that resulted in wrongful foreclosure.

A few years ago lawsuits had been filed in the lower courts and there were isolated instances of success at that level. Unfortunately those decisions ultimately end up in State Supreme Courts or Federal Courts of Appeal and usually end up being invalidated. That has started happening over the last 18 months. Almost all are dismissed. This includes the arguments that rely on the “missing” note claims.

Another main claim towards wrongful foreclosure is when the lender is participating in loan modification negotiations and then forecloses on the home. Recent court decisions have backed the lenders by stating that you are not entitled to a loan modification,

"district courts have consistently held that the Home Affordable Modification Program does not provide borrowers with a private cause of  [*27] action against lenders for failing to consider their application for loan modification, or even to modify an eligible loan. See, e.g., Lucero v. Countrywide Bank N.A., NO. 09-CV-1742, 2010 U.S. Dist. LEXIS 45340, 2010 WL 1880649, at *3-4 (S.D. Cal. May 10, 2010); Villa v. Wells Fargo Bank, N.A., NO. 10-CV-0081, 2010 U.S. Dist. LEXIS 23741, 2010 WL 935680, at *3 (S.D. Cal., March 15, 2010); Aleem v. Bank Of America, 09-CV-01812, 2010 U.S. Dist. LEXIS 11944, 2010 WL 532330, at *4 (C.D. Cal. Feb. 09, 2010); Escobedo v. Countrywide Home Loans, Inc., 09-CV-1557, 2009 U.S. Dist. LEXIS 117017, 2009 WL 4981618, at *2-3 (S.D. Cal. Dec. 15, 2009)." 

Also, to bring a claim for wrongful foreclosure, you cannot be in breach of an obligation. In summary, if you are not paying your mortgage, you cannot claim wrongful foreclosure.  

 There are many recent decisions that address almost every claim you may have heard about. In Simon v. Bank of Am., N.A., 2010 U.S. Dist. LEXIS 63480, 26-27 (D. Nev. June 23, 2010), which again is just one of many cases that have been ruled upon in a similar fashion, the Plaintiff’s claims were:

1. Violations of Unfair Lending Practices under N.R.S. § 598D; 2) Deceptive Trade Practices; 3) Wrongful Foreclosure; 4) Conspiracy to Commit Fraud and Conversion; 5) Conspiracy to  [*3] Commit Fraud Related to MERS System; 6) Inspection and Accounting; 7) Negligent Infliction of Emotional Distress; 8) Quiet Title; 9) Breach of Good Faith and Fair Dealing; 10) Injunctive Relief; 11) Declaratory Relief; and 12) Rescission.

All sound familiar? This entire case was dismissed by the District Court of Nevada in 2010.   

What else do I need to know?

 The most important thing you need to know is that there is no magic wand or silver bullet to solve your housing issues without any potential for recourse.

If you are underwater in your home and are looking for a way out or are effacing financial hardship and cannot pay your current mortgage, you have one choice to make:

Do I want to stay in the home or do I want to move?

If you would like to stay in the home, loan modification is your only option to reduce the payments to an affordable level. This is not always possible and you will need to contact your lender to determine your eligibility. Many people want a loan modification by way of principle reduction. Although this is possible and we have seen it happen, it is entirely up to the lender and you will never know unless you make contact with them to start the process.

If you do not want to stay in the home, you will need to look into the prospect of a short sale or continue to remaining the home without paying until a foreclosure occurs.