Question: Nevada lawmakers just overhauled Nevada's foreclosure laws. How will this affect me?
Answer: If you can afford the payments on your home and you don't plan on selling anytime soon, then these laws won't really affect you. However, if you are behind on your mortgage, considering a short sale, or in the middle of a foreclosure, these new changes may have a impact on your rights during the process. Here's a summary of some of the changes that go into effect on July 1, 2011:
Nevada Assembly Bill 273 makes major improvements to Nevada law to protect homeowners by limiting the amount of money a bank can collect after a homeowner loses their home. The law also reduces the time a bank has to file a lawsuit against some homeowners. These protections will greatly improve a homeowner’s opportunity to start over after a foreclosure or short sales, without the threat of a huge debt or a lawsuit by a lender.
Section 3 of AB 273 applies to homeowners who took out a second mortgage on a home after June 10th of 2011 (if anybody in Las Vegas still had equity in their home after June 10th of 2011, I'd be surprised). Section 3 provides that a lender may not collect a deficiency remaining on a second mortgage if certain conditions are met. A deficiency is the amount that you still owe the lender after the home is sold and the money from the sale is applied to the debt. However, this law only applies when the following five requirements are met:
(1) the lender is a financial institution;
(2) the property is a single-family home and is owned by the homeowner at the time of the foreclosure or short sale;
(3) the homeowner used the loan to purchase the property;
(4) the homeowner lived in the property; and
(5) the homeowner did not refinance the loan.
Section 3 of AB 273 provides a homeowner with more certainty in negotiating with the primary mortgage lender because the second mortgage holder has less ability to collect.
More good news for homeowners who lose their homes to foreclosure or short sale: the amount of time that a lender has to sue on a second mortgage got cut from six years to just six months after a foreclosure or short sale. (Section 3.3) This applies to all foreclosures or short sales that occurs on or after July 1, 2011.
Also, if the lender receives payment from an insurance company to cover its losses for the debt the homeowner was unable to pay on a second mortgage, the amount the lender can collect from the homeowner is reduced by the amount of the insurance proceeds. In other words, if you owe $50,000 on a second mortgage when you lose your home, the lender may have insurance to pay for a portion or all of that loss. So if the lender takes $40,000 from the insurance company, the amount it can collect from you is reduced by $40,000. This modification is in Section 2 of AB 273, which only applies if you took your second mortgage out after June 10, 2011.
The new laws will also affect debt collection agencies who buy mortgage debt from primary lenders for a fraction of the cost. Section 5 of AB 273 says that a credit collection agency who buys mortgage debt from a primary lender may only collect the difference between the amount that the agency paid for the debt and either the fair market value of the property, or the amount the property sold for, whichever is greater. This causes some major problems for debt collectors who buy mortgage debt. The following example shows why:
Let's say you stop paying your mortgage when you still owe $250,000 on your home. The real estate market has tanked, so your home is valued at $120,000. The house actually sells at auction for $100,000. You find out that your mortgage was sold by your lender to a debt collector. The debt collector only paid $50,000 for your debt, hoping it would collect more than the $50,000 and make a profit. Unfortunately for the debt collector, it can only collect the difference in the amount that it paid above either the value of the home or sales price of the home, which is greater. In this case, the debt collector paid only $50,000, which is less than the $120,000 value of the home, so the debt collector is out of luck.
Section 5 goes into effect June 10, 2011. Debt collectors that buy second mortgages are governed by Section 2 of AB 273 and are also limited to the amount they buy the debt for, plus interest and costs.
There is also a new law that provides protection to the lender who will be taking back the home after foreclosure:
Nevada Assembly Bill 373 basically allows for criminal prosecution of individuals who purposely damage or destroy the home or property that is the subject of foreclosure if the intent is to cause the lender to suffer a monetary loss. If convicted, the person who caused the damage may be found guilty of a misdemeanor. This new criminal law goes into effect on October 1, 2011. I don't offer legal advice on this blog, but it's safe to say that it's not smart to trash your home to get back at the bank.
As always, this does not constitute legal advice and does not establish an attorney-client relationship.