Changes To Nevada Law Regarding Foreclosures And Deficiencies

Posted by: on Mon, Aug 13, 2012

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ASSIGNMENTS

Nevada Revised Statutes 106.210 through 205.395, set forth the revisions to those Nevada statutes which were effected via AB 284. Lenders need to be aware of the first sentence found in NRS 106.210, which now includes the following requirement: “If the beneficial interest under a deed of trust has been assigned, the trustee under the deed of trust may not exercise the power of sale pursuant to NRS 107.080 unless and until the assignment is recorded pursuant to this subsection.”

Therefore, lenders now need to make certain that any assignment(s) have been recorded with the Clark County Nevada Recorder’s Office (or with the recorder’s office of any other Nevada county in which the property securing the loan exists) before proceeding to exercise foreclosure sale rights.

DISCHARGE NOTICES

Lenders should also be aware that NRS 106.290 continues to require the recording of appropriate discharge notices within 21 days of any discharge of a mortgage and increases the penalties for failing to do so. NRS 106.360 also requires the recording of any instrument encumbering the borrower’s real property to secure future advances in order for such document to be enforceable, and that an amendment to any such document must now also be recorded.

TRUSTEE REQUIREMENTS

NRS Chapter 107 has now been amended to specifically indicate that a trustee under a deed of trust must be an attorney licensed to practice law in the State ofNevadaor a title insurer or title agent authorized to do business inNevadaor a person licensed pursuant to Chapter 669 of NRS (i.e., a “Trust Company”). Moreover, the trustee of the deed of trust may not be the same person or entity as the beneficiary. Lenders should review any deeds of trust prior to foreclosure to ensure that none of them have a trustee who does not comply with these new requirements.

NOTARIZED AFFIDAVIT OF AUTHORITY REQUIREMENT

NRS 107.080 has now been amended to require that the notice of breach and election to sell which commences the foreclosure process include a notarized affidavit of authority to exercise the power of sale, based on personal knowledge and under the penalty of perjury, which affidavit must include the following information: (1) the full name and business address of the trustee or the trustee’s personal representative or assignee, the current holder of the note secured by the deed of trust, and the current beneficiary of record and the servicers of the obligation or debt secured by the deed of trust; (2) the full name and last known business address of every prior known beneficiary of the deed of trust; (3) that the beneficiary under the deed of trust, the successor in interest of the beneficiary, or the trustee is in actual or constructive possession of the note secured by the deed of trust; (4) that the trustee has the authority to exercise of power of sale with respect to the property pursuant to the instruction of the beneficiary of record and the current holder of the note secured by the deed of trust; (5) the amount in default, the principal amount of the obligation or debt secured by the deed of trust, a good faith estimate of all fees imposed and to be imposed because of the default and the cost and fees charged to the debtor in connection with the exercise of the power of sale; and (6) the date, recordation number or other unique designation of the instrument that conveyed the interest of each beneficiary and a description of the instrument that conveyed the interest of each beneficiary.

REQUESTS FOR STATEMENTS FROM BENEFICIARY

Similarly, under NRS 107.210, amended language now exists requiring that the beneficiary of a deed of trust secured on or after October 1, 1995 shall, within 21 days after receiving a request from any person authorized to make such a request cause to be provided the identity of the trustee or the trustee’s personal representative or assignee, and the current holder of the note secured by the deed of trust, as well as the beneficiary of record and the servicers of the obligation or debt secured by the deed of trust, as well as if the debt is in default, the amount in default, the principal amount of the obligation or debt secured by deed of trust, the interest accrued and unpaid and all fees imposed because of default, etc. NRS 107.210(6) and (7) also provide additional penalties with respect to any failure to comply with the statute.

FALSE REPRESENTATIONS CONCERNING TITLE

NRS 205.395 has been amended to provide for certain new criminal and civil penalties for any person who records a document claiming an interest in or a lien or encumbrance against real property, knowing or having reason to know that the document is forged or groundless, or contains a material misstatement or false claim. The main effect of these statutory changes appears to be to provide a stronger slander of title theory for litigants in Nevada. The prior statute and case law in Nevada with respect to slander of title required an element of malice which often provided defendants in such cases with a defense if they had recorded liens or encumbrances believing they had the right to do so, or with advice of counsel, or if they simply could not be shown to have acted with malice in doing so but acted in order to pursue what they believed were legitimate financial claims. It appears that these statutes would make it much more difficult for that defense to now be raised and strengthens the right of plaintiffs to sue for slander of title claims in Nevada.

2011 STATUTORY AMENDMENTS REGARDING FORECLOSURE and DEFICIENCIES

The following is a brief overview of other newly enactedNevadalegislation that potentially might impact a lender’s foreclosure business. The 2011 amendments outlined here certainly are certainly not intended to be a comprehensive review ofNevadastatutory law relative to foreclosure proceedings, but merely a brief overview of some of the recent changes.

Assembly Bill 273 amended NRS 40 relative to the limitations imposed on the amounts of deficiency judgments that can be recovered against borrowers and guarantors. Section 5 of AB 273 created an additional limitation and clarified how the amount of the indebtedness is to be calculated. The new statute now provides that the judgment rendered by the court shall not be greater than “if the person seeking the deficiency judgment acquired the right to obtain the judgment from a person who previously held that right, the amount by which the amount of the consideration paid for that right exceeds the fair market value of the property sold at the time of sale or the amount for which the property was actually sold, whichever is greater, with interest from the date of sale.” The exact meaning of this statutory language will likely be determined by future litigation. Borrowers may assert that the effect of this new provision is to limit a deficiency award whenever the underlying debt has been acquired, such as from the original lender. Borrowers may argue that the obvious intent of the act was to limit recovery where the lender sold post foreclosure the right to pursue a deficiency action at a steep discount. The legislative minutes provide the following example: “These provisions say if a bank chooses to pursue someone for a deficiency judgment in a situation where a house was purchased for $200,000 and the value dropped to $100,000 – and the bank decided to pursue the homeowner for the $100,000 and then sold it to a collection agency for $20,000 – all the collection agency could collect would be the $20,000 plus interest and fees.” Whether and how this limitation may apply to mergers and acquisitions in a variety of settings (i.e., consensual via contract or nonconsensual pursuant to federal regulations) has yet to be determined.

Assembly Bill 273 was adopted as Chapter 311 inNevada. Under existing law, a judgment creditor or a beneficiary of a trust deed may obtain, after a hearing, a deficiency judgment after a foreclosure sale if it appears there is a deficiency of the proceeds of the sale and balance remaining due the judgment creditor or beneficiary. Existing law requires a judgment creditor or beneficiary to bring an action for a deficiency judgment within six months after the foreclosure sale. As amended, a lender now may not collect a deficiency in court on first mortgages taken out after October 1, 2009. Section 3 extends those protections to second mortgages taken out after June 10, 2011. This law will apply if the lender is a financial institution, the real property is a single family dwelling and the homeowner owned the property, the debtor used the loan to purchase the property, lived continuously in the property and did not refinance the loan.

Chapter 668 was amended to provide that a bank or other financial institution shall not unreasonably delay responding to an offer for a sale in lieu of a foreclosure sale on real property secured by a residential mortgage loan. The statute then provides that a person is presumed to have unreasonably delayed responding to an offer for a sale in lieu of a foreclosure sale on real property secured by a residential mortgage loan when the person fails to respond to an offer for a sale in lieu with an acceptance or rejection of the offer within 90 days after receipt of the offer, unless the parties have agreed in writing. This new statutory provision gives short sellers some ammunition in the battle for a response from a lender. However, the new statute does not define the penalty for any delays in responding. To avoid complaints from being filed under this new deadline, lenders should make certain there are guidelines in place to respond to such offers within 90 days.

As questions arise in your foreclosure proceedings, as either a lender or a borrower, we would be happy to assist you to determine how to best protect your interests in this ever changing and complex area of the law.

By Mark Albright

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. We have a broad range of experience in advising and representing lenders, borrowers, developers, buyers and sellers in a wide variety of commercial real estate transactions, including purchase and sale agreements, permitting, leasing and financing. We represent lenders in all aspects of commercial and residential loan transactions and litigation. We represent owners and developers in all aspects of permitting and commercial development, zoning and leasing. We have a significant amount of experience representing lenders and borrowers with workouts, foreclosures and the restructuring of troubled existing financing. The firm has extensive experience in defending contractors and subcontractors from construction defect claims.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on personal injury accidents. Call us at 702-384-7111.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

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