FIVE OPTIONS IN NEVADA WHEN BEHIND IN YOUR MORTGAGE
Once you get behind in your mortgage payments there are only five possible outcomes. Just as every airplane flight ends in a landing, one of the following five events is going to occur when you get behind in your mortgage. There are different rights and impacts for each of the five events.
Keep in mind that each person and entity’s situation is unique. Employment of an experienced lawyer is extremely important to both ensure that all options are explained to the client and that the client understands the legal impact of every decision that is being made. These decisions have long range implications on the clients’ financial future. the importance of being fully informed of the law cannot be overstated.
In Nevada the common financing instrument for real property is a promissory note secured by a deed of trust. This article refers to a note and deed of trust as a mortgage, although because they are two separate documents they have separate rights and obligations associated with each document. The differences are not important to the general discussion below.
1. Loan modification. This procedure has become essentially routine in the past year. All mortgages insured or owned by either Freddie Mac or Fannie Mae, about 80% of the market as of the date of this article, must offer a loan modification on terms dictated by the U.S. Treasury Department. The Home Affordable Modification Program (HAMP) in a nutshell tries to reduce the interest rate and extend the repayment term to get the homeowner’s payment to 31% of his/her gross monthly income. This 31% payment includes interest, principal, taxes, insurance and HOA dues.
2. Short sale. Also called a short payoff. The lender agrees to accept payment of less than the full loan balance to allow the property to be sold. Due to the rapid fall in prices selling real estate for its current value will usually not be enough to pay off the loan balance. Some lenders are requiring the borrower to sign a promissory note obligating the borrower to pay the lender the difference between the amount that is being paid and the loan balance.
By far this is currently the preferred option from the lender’s viewpoint when a loan modification is not available.
A short sale is almost impossible to achieve when a second mortgage exists on the property because the lender in second position has to agree to accept nothing or close to nothing for seller to transfer clear title.
3. Deed in Lieu of Foreclosure. The borrower provides a deed to the lender in satisfaction of the outstanding mortgage. This is rarely used other than by private lenders because the foreclosure process clears up the title to the property by notifying and eliminating all private liens and encumbrances recorded against the title to the property after the mortgage was originated. Government liens such as taxes and municipal utility services are not eliminated by a foreclosure sale.
4. Reinstatement. The borrower reinstates the loan by paying all past due amounts, without any modification of the terms of the loan.
5. Foreclosure. The lender can initiate and complete a foreclosure. Although Nevada does have procedures for both judicial and non-judicial foreclosure, non-judicial foreclosure is so much faster and cheaper that there are virtually no judicial foreclosures unless there is a title issue that would have to be resolved by the court anyway.
The lender can seek a deficiency judgment against the borrower for the difference between the sale price at the foreclosure sale and the loan balance on that date. Suit must be filed to adjudicate the deficiency judgment within six months of the foreclosure sale.
If the property is a primary residence, the homeowner can request a mediation with the lender through the Foreclosure Mediation Program. The request must be made within 30 days of receipt of the Notice of Default. The goal of mediation is to explore avenues other than completing the foreclosure sale such as through a loan modification, a short sale, or a deed in lieu of foreclosure.
HOMEOWNER BILL OF RIGHTS
Nevada Governor Sandoval signed the Homeowner Bill of Rights into law, effective October 1, 2013. Contact my office to obtain a copy of SB 321.
This is a carbon copy of California’s legislation that creates foreclosure mediation requirements while setting up civil penalties for banks that fail to follow specified servicing requirements.
The legislation aims to end dual-tracking – or the pursuit of a loan modification alongside foreclosure processing. It also codifies single-point of contact servicing requirements. Other provisions include a requirement that 30 days before the recording of a default notice or a commencement of a judicial foreclosure, loan servicers will provide a homeowner with information about foreclosure prevention alternatives. It also prohibits foreclosure proceedings unless a loan servicer complies with all of the requirements for reaching out to distressed borrowers. Lenders who foreclose on fewer than 100 owner-occupied homes a year are exempt.
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