In Nevada, if you go through foreclosure and the sale price is not enough to cover the balance of your mortgage, the foreclosing party (the “bank”) can come after you for the deficiency. However, there are limits to the amount of the deficiency judgment and, in certain circumstances, the bank is prohibited from getting a deficiency judgment altogether.
Read on to learn what a deficiency judgment is, when your bank can get one against you in Nevada, and what limitations Nevada law puts on deficiency judgments.
When a bank forecloses, the total debt owed by the borrowers frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.”
Example. If the total debt owed is $200,000, but the home sells for only $150,000 at the foreclosure sale, the the deficiency is $50,000.
In some states, the bank can seek a personal judgment against the debtor to recover the deficiency. Generally, once the bank gets a deficiency judgment, the it may collect this amount (in our example, $50,000) from the borrowers by doing such things as garnishing the borrowers’ wages or levying the borrowers’ bank account. (To learn more about deficiency judgments in the foreclosure context, see Deficiency Judgments: Will You Still Owe Money After the Foreclosure?)
Most foreclosures in Nevada are nonjudicial, which means the bank does not have to go through state court to foreclose. (In a judicial foreclosure, the bank must foreclose through the state court system. To learn more about the difference between judicial and nonjudicial foreclosures, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
Limitation on deficiency judgments. In Nevada, a bank may obtain a deficiency judgment within six months following foreclosure, but the amount of the judgment is limited to the lesser of:
Court hearing to establish fair market value. Before awarding a deficiency judgment, the court will hold a hearing to receive evidence from the bank and the borrowers concerning the fair market value of the property as of the date of foreclosure sale. The bank must give the borrower notice of the hearing 15 days prior to the hearing. The court will appoint an appraiser to appraise the property if the bank or borrowers make a request at least 10 days before the hearing date. (Nev. Rev. Stat. § 40.457).
Some deficiency judgments are prohibited. A deficiency judgment is not allowed when all of the following apply:
Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and HELOCs, among others) are also foreclosed and those junior lienholders lose their security interest in the real estate. If a junior lienholder has been sold-out in this manner, that junior lienholder can sue you personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you may face lawsuits from those banks to collect the balance of the loans. (Learn more in our article What Happens to Liens and Second Mortgages in Foreclosure?)
The statutes governing Nevada foreclosures can be found in §§ 107.080 to 107.100 and 40.455 to 40.463 of the Nevada Revised Statutes.
If you’re a Nevada homeowner facing a foreclosure and you want to learn more about how foreclosure works, whether you might have any defenses to the foreclosure, or information about different ways to avoid a foreclosure, consider talking to a foreclosure attorney. If you can’t afford to hire an attorney, consider contacting a HUD-approved housing counselor.