Keeping you informed about Las Vegas NV. Real Estate & Mortgage industry

Bankruptcy, foreclosure, short sale, and loan modification. Pros, Cons & Tax liabilities.

PART ONE...... THE DEFICIENCY JUDGMENT

IT IS A JUNGLE OUT THERE! Let me bring some light into the short sale, foreclosure, bankruptcy, and loan modification deep-dark night, and how each one of them will benefit or hurt you. All of the above will affect your credit score and/or have tax consequences.

DISCLAIMER: I am not a CPA or a lawyer, so make sure to consult your professional advisors.

This article is intended to provide general information only, this is not intended to be a tax or legal advice and you should always consult with your own accountant, attorney and trusted advisors to discuss your specific situation, goals, rights and options.

That said, grab a cup of coffee, and hang on tight …

First, let me state something: NOTHING AND NOBODY CAN STOP FORECLOSURE. IT CAN ONLY BE DELAYED!

Let us understand clearly, what a foreclosure is and the timing of it, this will make easier to understand all the rest of this very complicated subject.

Lenders will file, usually after the 2nd. or 3rd. late, (may be more in today’s market) a Notice of Default and Election to Sell (N.O.D.) to protect their interests. From the moment the N.O.D. is recorded the borrower will have 35 days to reinstate the loan and after that the loan will be due and payable in full till the Trustee Sale. That usually will occur within four/five months from recording. (Please contact me if you wish to receive a detailed chat explaining in detail the process).

And here the fun really begins!!!!!!

If, at the trustee’s sale, the trustee is not able to sell the house for the outstanding debt/loan on the house, then the beneficiary has the option of seeking a deficiency judgment against the borrower. That means that the lender could sue you for their losses, and get a judgment against you for that amount. Then they could pursue the judgment through standard collection procedures such as attempting to garnish your wages.

Notice, I said, “could” a deficiency judgment.

A deficiency judgment is not automatic and bank are very reluctant to pursue that route since is a very expensive one. The beneficiary must file a complaint in a Nevada district court within 6 months of the trustee’s sale asking the court for a deficiency judgment for the balance remaining due. In this lawsuit, the trustee must serve a summons on the borrower (now defendant) just like any other lawsuit. The defendant must file an answer disputing the fair market value of the property sold.

Before awarding a deficiency judgment, the court shall hold a hearing and shall take evidence presented by either party concerning the fair market value of the property sold as of the date of the foreclosure sale or trustee’s sale. If the court finds the debt is more than the fair market value of the property, it may enter a judgment of deficiency against the borrower/defendant. That is the so called “deficiency judgment.”

A new law regarding deficiency judgments (that will make lenders even more reluctant to follow that route), has taken effect for deeds of trust on owner-occupied houses financed after October 1, 2009. This law will help eliminate deficiency judgments under specific circumstances. I will write more about that in a future article.