CHANGE TO NEVADA LAW PROHIBITS DEFICIENCY JUDGMENTS FOR LOANS MADE STARTING OCTOBER 1 TO PURCHASE PRIMARY RESIDENCES

Nevada currently provides for the right of a foreclosing lender on real estate to pursue a deficiency judgment against the borrower on any type of property including a primary residence. Nevada is known as a full recourse state.  The law provides for a six month period following the trustee’s sale in which the lender may file an action against the borrower to recover amounts owing.

Nevada becomes a nonrecourse state for new loans made starting October 1 for the purchase of residential property that is owner occupied.  Thus the lender may no longer pursue a deficiency judgment against the borrower on such property.  Although some may consider this the equivalent of sending life boats and vests to the Titanic days after the sinking, it is a significant development in Nevada real estate law.

For the new law to apply the following requirements must be met:

1. The real property is a single-family residence;
2. The loan was used to buy the property;
3. The borrower continuously occupied the property as a principal residence after the loan was made;
4. The original loan was not refinanced;
5. The loan was made by a financial institution.

Putting all of the data together it seems to point to the conclusion that short sales are going to continue to garner a larger market share than ever before as Foreclosures continue to decrease. So for all of you who didn’t catch the “Foreclosure Bus” don’t miss this next market trend!!

A new Nevada law allowing any homeowner receiving a notice of default from their lender to request mandatory mediation with that lender becomes effective on July 1^st.

The purpose of the mediation program is to avoid a foreclosure by providing a forum for home owner and lender to negotiate a loan modification including a short sale.

The most important development is that the lender must be represented at the mediation hearing by a representative who has authority to modify the loan or who has telephone access to someone with such authority.  The lender’s failure to do so may result in the mediator modifying the loan.  Proposed court rules for the program allow a lender to participate by telephone if approved by the mediator.

The mediation is nonbinding.  The lender retains complete discretion as to whether to modify the loan and, if so, on what terms.  However, a trustee’s sale of the home may not occur until the mediation is completed.  The trustee’s sale is the final step in the foreclosure process.  As a general practice the lender makes the winning bid at the sale and becomes the owner of the home.

The cost of the mediation is $400 divided equally between the homeowner and the lender. According to the proposed rules the maximum period of time allotted to a mediation session is four hours.  The homeowner must provide a financial statement together with a Housing Affordability Worksheet.  The lender must provide a certified copy or original of the Deed of Trust and promissory note together with a copy of each assignment of the note and deed of trust.

The lender’s failure to provide the required documents may result in sanctions. The lender may also provide an estimate of the short sale value of the property if the loan cannot be modified.

Under the proposed rules the mediation must take place within 90 days of the filing of the notice of default. By law the foreclosure process can take no less than 111 days from the filing of the notice of  default to the sale.  The mediation program is mandatory at the homeowner’s request if the Notice of Default was filed July 1 or thereafter.  The parties may stipulate to mediation if the notice of default was recorded prior to July 1.

Final mediation rules will be issued in the near future.  However, as a new program there are many unanswered questions as to how effective the program will be.  Whether lenders will participate in good faith to avoid foreclosures is unknown.

Based upon cases from around the country a lender’s ability to provide the necessary documentation including copies of all assignments could be a serious challenge for them.  For the homeowner the ability to present a case for a loan modification will depend upon their ability to make their numbers work so as to persuade the lender of their ability to make future modified payments.

By: Robert B. Noggle, Attorney
Black & LoBello

Robert B. Noggle may be contacted at (702) 869-8801 or rnoggle@blacklobellolaw.com.  For more information visit www.blacklobellolaw.com

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1. If you are emailing your offer to the agent always use the read receipt function. (In Outlook this can be accessed through the options toolbar)

2. Include a letter with your offer that includes the language:

Please find enclosed our Residential Purchase Agreement/Counter  offer. Per NAC 645.632.1 you are required by statue to respond in writing. Verbal responses will not be accepted, only written responses will be accepted. Please fax you seller’s response to my fax number at 000-0000. Should you have any questions, please contact the Real Estate Division.

NAC 645.632 Notification of rejection of offer or counteroffer.

1. If a licensee represents a seller in a transaction, and if the seller does not accept an offer within a reasonable time after an offer has been presented to the seller, the licensee shall provide to the buyer or the representative of the buyer written notice signed by the seller which informs the buyer that the offer has not been accepted by the seller.

2. If a licensee represents a buyer in a transaction, and if the buyer does not accept a counteroffer within a reasonable time after a counteroffer has been presented to the buyer, the licensee shall provide the seller of the representative for the seller written notice by the buyer which informs the seller that the counteroffer has not been accepted by the buyer.

Should we not hear from you within 3 business days we have the option to file a complaint with the Real Estate Division for non-compliance of the statutes of the State of Nevada. 

I would like to thank Ron Ruthe who has instituted the above language and for leading the charge against unresponsiveness. Please let me know of your success.

Our Las Vegas real estate inventory posted through the Multiple Listing Service is also supporting a continued strong market. The listing inventory has dropped below 20,000 to 19,888 which is a 16% decrease of available homes for sale over last year. And the REO listings are maintaining at about 31% of our available inventory, although this will probably increase in the near future. However I think that having a continued stream of aggressively priced homes will only contribute to this strong trend and indicates 2009 will be one of our best years.

Yesterday at the Prudential National Convention in Las Vegas, Geoff Colvin, Fortune Magazine Senior Editor and acclaimed journalist spoke to over 3,500 Prudential agents.  He suggested that we will know when this economic crisis is behind us based on two economic indicators. The first being the Treasury Bill rates and the second is the Junk Bond ratings. Apparently during the “good times”, the disparity between the two ratings was just a little more than two point five, now the difference between the two is over 20 which suggests a high risk factor. As the ratings come closer, there will be less risk and we will all be able to sleep a little better a night.

According to the Fannie Mae Announcement 09-03

This is great news–no more guessing what your commission will be and no doubt this will have a positive impact on the short sale market!  I know that some agents would rather have impacted wisdom teeth removed without anesthetic than submit an offer on a short sale and  after hearing about some of the horror stories, I can’t say that I blame them. However taking into consideration my earlier blog  “how to navigate the short sale offer” and asking one more important question, has  a BPO been done by the bank, I think short sales can be accomplished with less headache than ever before.

Today Chief Economist for the NAR, Dr. Lawrence Yun predicted in his economic 2009 update at the Rocky Mountain Regional Conference, that Las Vegas would lead the country out of the housing crisis.

     Dr. Yun attributes this recovery in Las Vegas to two events 1.The  home prices are under market and 2. The Stimulus Plan. He believes the first time home buyers tax credit up to $8,000,along with the raising of the loan limits will have a positive impact on housing market. He sees the tax credit as translating into about an additional 300,000 first time home sales nation wide. The Rocky Mountain Region has been the biggest growth region in the country and Las Vegas is at the epicenter of that growth.  

He also predicted that towards the end of the year the median price of homes will improve. Although we did see last month a drop off  in foreclosures from the 2008 4th quarter, pricing has not stabilized yet due to rising decline of foreclosures. He did bring up an interesting point that the home buyers that were sitting on the fence waiting to see what the Stimulus was going to do,  are now ready to make the move to buying a home.

The Mixed Bag news is that he sees another one and a half million job losses in the next six months but doesn’t think we’ll hit 10% unemployment and even if we did that’s still  90% of the people who can respond to incentives.  And according to the Case-Schiller Index, home prices were up 108% from 1998 to 2006 and now show a 67% increase from 1998 to 2008. The home affordability index is about the same as it was in the 1970′s with the income index up to 34% from 24% for the same time period.   

All in all, a more positive outlook for our Las Vegas Real Estate Market!