If you go through a foreclosure in Nevada, but the foreclosure sale doesn't bring in enough money to cover the balance of your mortgage loan, the difference between the sale price and your total debt is called a “deficiency.” Many states—including Nevada, subject to a few limitations—allow the bank to then get a deficiency judgment (a personal judgment) against the borrower for the amount of the deficiency.
But what if you complete a short sale or a deed in lieu of foreclosure? What happens to the deficiency? Fortunately, Nevada law prohibits deficiency judgments after a short sale or deed in lieu of foreclosure under certain circumstances. In this article, you'll learn what those circumstances are.
You can avoid a foreclosure with a short sale or deed in lieu of foreclosure, but either option will most likely result in a deficiency.
Short sale. A short sale is when you sell your home for less than the total balance you owe the bank. The proceeds from the short sale pay off a portion of the debt. The deficiency amount is the difference between the sale price and the total debt.
Deeds in lieu of foreclosure. A deed in lieu of foreclosure is when you hand the deed to the property over to the bank rather than going through a foreclosure. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the home and the total debt.
Under Nevada state law, the bank can’t seek a deficiency judgment against you after a short sale or deed in lieu of foreclosure when all of the following apply:
If you hope to avoid a deficiency judgment, you must meet all of the above criteria—including making sure that your agreement with the bank contains a conspicuous waiver. Often, short sale and deed in lieu of foreclosure agreements don’t include a waiver.
If you want to fight a foreclosure in court or need help arranging a short sale or deed in lieu of foreclosure that won’t leave you liable for a deficiency judgment, talk to a foreclosure attorney. It’s also recommended that you speak to a HUD-approved housing counselor.