In Nevada it is very important that you know if you have only a First or if you have more Deeds against your home, such as a HELOC. If the first deed of trust is not paid they have 2 choices, either sue or foreclose. NRS 40.430 (See*Below) tells us that, “there may be but one action for the recovery of any debt.” Normally they foreclose.
Nevada is a ‘one action’ state where the bank can pursue only one action to recover a debt secured by a mortgage or lien on real property. Meaning the bank can take the property by foreclosure or sue for the debt. But remember there are ALSO 2nd lien holders and maybe 3rd or 4th lien holders! If the 1st forecloses, the remaining lien holders known as a “sold-out juniorlien holder(s)” and they have the right to sue. And unlike a “deficiency judgment” as described below the 2nd Deed has SIX (6) YEARS to file suit.
So remember that, if a 2nd or 3rd etc. note holder is not paid, they can sue the home owner later for ‘breach of contract’ and the contract is the ‘non payment of the promissory note.’ The 2nd or 3rd etc. note holder is not obligated to take less than what they are owed on a short sale and they can ‘1099’ your client for the monies they are not paid, they can also ‘remove the lien’ to allow the transfer of title and demand that your client continue to pay the note after the close of escrow.
If you would like to learn about ‘deficiency judgments’ see my blog next Friday on FORECLOSURE / DEFICIENCY. Bankruptcy (See**Below) complicates all law suits and foreclosures and in some instances eliminates debt.
Want to read more? Here’s a 2005 Nevada Supreme Court Case on one action and foreclosures.(See***Below)
(*) NRS 40.430 Action for recovery of debt secured by mortgage or other lien; “action” defined.
1. Except in cases where a person proceeds under subsection 2 of NRS 40.495 or subsection 1 of NRS 40.512, there may be but one action for the recovery of any debt, or for the enforcement of any right secured by a mortgage or other lien upon real estate. That action must be in accordance with the provisions of this section and NRS 40.433 to 40.459, inclusive. In that action, the judgment must be rendered for the amount found due the plaintiff, and the court, by its decree or judgment, may direct a sale of the encumbered property, or such part thereof as is necessary, and apply the proceeds of the sale as provided in NRS 40.462.
(**) Due to the complexity of bankruptcy law, and the difficulty of determining which form of bankruptcy will apply to any given situation, most people will benefit from consulting with a qualified bankruptcy lawyer before filing for bankruptcy. The Prudential, Americana Group, REALTORS® legal department has a list of recommended bankruptcy attorneys at https://americenter.americanagrp.com/info/AmeriNet/Legal/ATTORNEY_FRAME.HTM
(***) http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=nv&vol=121NevAdvOpNo79&invol=2
(Note: If you do not have a FindLaw account, you may create a free account after clicking on this link. It will then direct you to the case cited here.)
April 20, 2007 at 10:00 am
Great Post! That clears up some long standing questions for me. I will direct my short sale sellers and buyers here. Invaluable.
July 22, 2007 at 6:15 am
Darren,
Supposed that, as an investor, I decide to purchase the first mortgage on a property where there is a first and a second.
Assuming that the owner is late 4 months on both mortgages. I decide to foreclose. The property goes for auction and I am the highest bidder. There is not enough money to even repay the junior lien holder. Is the junior lien wiped out without any recourse except for filing a deficiency judgement against the debtor?
February 1, 2008 at 3:14 pm
Regarding 2nd Mortgage right to sue, is there a statute of limitations (6 months)like the first position lien holder?
March 14, 2008 at 1:51 pm
I understand the diffence between a one action state on a foreclosure filed by a senior/1st lien holder and the “breach of contract” on the soldout junior lien holder. Its my understand that foreclosure lien holder has up to six months to file for a deficiency judgement after the forelosure is done, but the “breach of Contract” junior lien holder has six years.
BUT……
What if the Junior/second lien holder foreclosed and not the first. Is the first now under the breach of contract terms or does the do they forclosure once that process is start with the junior lien?
April 21, 2009 at 11:50 pm
I can tell that this is not the first time you write about this topic. Why have you decided to write about it again?
May 20, 2009 at 5:09 pm
[...] April 27, 2007 TGIF Legal Tip: FORECLOSURE / DEFICIENCY Posted by Darren Welsh under Debt/Recovery, Foreclosure, TGIF Legal Tips [11] Comments DEFICIENCY: Nevada, unlike California, is a deficiency state. Meaning even AFTER the bank forecloses the bank can still go after the remaining debt against a seller. Do not confuse this with a 2nd lienholders right to sue when they have been rendered a “sold-out junior lienholder” as described in the FORECLOSURE / ONE ACTION blog. [...]
October 16, 2009 at 11:41 am
[...] One Action Rule EXPLANATION [...]
December 9, 2009 at 8:15 am
What you have written is very insightful and much better than what several others have written on this topic. Thanks