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.
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.
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."
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.
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.
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.
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.
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.
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:
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:
This limitation applies to loans taken out after June 10, 2011. (Nev. Rev. Stat. § 40.459).
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).
Under Nevada law, the lender can't get a deficiency judgment against the borrower when all of the following apply:
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.
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.