Deficiency Judgments Laws in Nevada

When the foreclosure sale price doesn't cover the balance of the borrower's mortgage debt, the difference between the total debt and the sale price is called a "deficiency." In most states, including Nevada, if a foreclosure sale results in a deficiency, the lender may get a "deficiency judgment" against the borrower for the deficiency amount.

But Nevada law limits the deficiency amount if the property's fair market value is more than the foreclosure sale price. And in specific circumstances, state law prohibits the lender from getting a deficiency judgment altogether.

Example of a Deficiency in a Foreclosure

If the borrower's total debt is $600,000, but the home sells to the highest bidder at a foreclosure sale for $550,000, the deficiency is $50,000.

What Is a "Deficiency Judgment" After a Foreclosure Sale?

If state law allows it, the lender can seek a personal judgment against the borrower to recover the deficiency, if one exists. This kind of money judgment is called a "deficiency judgment."

What Is the Legal Process to Get a Deficiency Judgment?

In some states, the lender may ask for a deficiency judgment as part of a judicial foreclosure process. In other states, the lender has to file a separate lawsuit against the borrower after the foreclosure to get a deficiency judgment.

Will I Definitely Have to Pay a Deficiency Judgment After Foreclosure?

If the sale price is equal to, or more than, the mortgage debt amount, you're off the hook because no deficiency exists. In fact, if the sale results in excess proceeds, you might be entitled to that extra money following the foreclosure auction.

But if any junior liens were on the home, like a second mortgage or HELOC, or if a creditor recorded a judgment lien against the property, those parties get the funds to satisfy the amount they're owed. Then, any proceeds left over after paying off these liens belong to the foreclosed homeowner.

How Lenders Collect Deficiency Judgments

Generally, once a lender gets a deficiency judgment, it may collect this amount (in the example above, $50,000) from the borrower using basic collection methods, like garnishing wages or levying a bank account.

Will My Lender Sue Me for a Deficiency Judgment?

Even if your lender has the right under state law to go after you for a deficiency judgment, it might decide not to do so—especially if you don't have many assets to satisfy the judgment. The lender might decide it isn't worth the expense and effort of getting a deficiency judgment.

Still, you should know whether your lender can pursue you for a deficiency after a foreclosure. Also, even if the lender decides not to sue you for a deficiency judgment, it could sell the debt to a debt buyer who might file a lawsuit against you for the deficiency later on.

Legal Requirements for a Deficiency Judgment in Nevada

Most foreclosures in Nevada are nonjudicial, which means the lender doesn't have to go through state court to foreclose.

In Nevada, the lender could alternatively choose to foreclose through the state court system, called a "judicial foreclosure." However, in states where a nonjudicial process is available, lenders almost always choose this route because it's relatively quick and inexpensive.

Because Nevada foreclosures are ordinarily nonjudicial, this article focuses on laws concerning that process.

Are Deficiency Judgments Allowed Against Defaulted Homeowners in Nevada?

Under Nevada law, a lender can get a deficiency judgment by filing a lawsuit within six months following a foreclosure. (Nev. Rev. Stat. § 40.455).

But the amount of the judgment is limited to the lesser of:

• the difference between the borrower's total debt and the home's fair market value at the time of the sale, plus interest, or
• the difference between the borrower's total debt and the foreclosure sale price, plus interest. (Nev. Rev. Stat. § 40.459).

If the party seeking the deficiency judgment acquired the right to obtain the judgment from a party that previously held that right, the judgment is limited to the lesser of:

• the difference between the consideration paid and the property's fair market value at the time of sale (plus interest from the date of sale and reasonable costs), or
• the difference between the consideration paid and the foreclosure sale amount (plus interest from the date of sale and reasonable costs).

This limitation applies to loans taken out after June 10, 2011. (Nev. Rev. Stat. § 40.459).

How the Court Establishes the Property's Fair Market Value

Before awarding a deficiency judgment, the court will hold a hearing to receive evidence from the lender and the borrower about the property's fair market value as of the foreclosure sale date. The lender has to provide the borrower with notice of the hearing 15 days ahead of time. The court will appoint an appraiser to appraise the property on its own motion, or if the lender or borrower requests it, at least ten days before the hearing date. (Nev. Rev. Stat. § 40.457).

When Deficiency Judgments Are Prohibited in Nevada

Under Nevada law, the lender can't get a deficiency judgment against the borrower when all of the following apply:

• the lender is a financial institution
• the borrower used the mortgage loan to buy the property, and the loan wasn't refinanced
• the property is a single-family residence that the borrower owned at the time of the foreclosure sale
• the borrower continuously occupied the property as a principal residence after getting the loan, and
• the loan was obtained on or after October 1, 2009. (Nev. Rev. Stat. § 40.455).

Can You Avoid a Deficiency Judgment in Nevada?

Even if your lender gets a deficiency judgment, you might be able to eliminate your liability for a deficiency judgment and many other dischargeable debts in a Chapter 7 or Chapter 13 bankruptcy.

Or you might have a defense to the deficiency that could reduce the amount you owe or prohibit the lender from getting a deficiency judgment, such as if you qualify under the provisions of Nev. Rev. Stat. § 40.455.

Getting Foreclosure Help in Nevada

To learn more about Nevada's foreclosure process or potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. You might also consider talking to a HUD-approved housing counselor to learn about different loss mitigation options.