Q:   Where can I find out more about Nevada's Foreclosure Mediation Program? 

A:  You can learn more about Nevada's Foreclosure Mediation Program directly through my office, Nevada Supreme Court, and/or Legal Aid Center of Southern Nevada.  You may be eligible for free legal representation at the foreclosure mediation through Legal Aid Center of Southern Nevada.  If you cannot afford legal representation and do not qualify for pro bono services, you can learn more about representing yourself in foreclosure mediation through classes offered by Legal Aid Center of Southern Nevada.

Q:  What are the benefits of mediating through the Nevada Foreclosure Mediation Program?

A:  There are several benefits regardless of whether you want to keep your home or not.  The mediation hearing is an opportunity to discuss options and negotiate directly with the foreclosing lender.  Benefits may include modification of your mortgage; reinstatement of the mortgage with the mortgage arrears being tacked to the end of the loan; or postponement of the foreclosure process if the homeowner is willing to short-sell the home.  

If the foreclosure process has been initiated, the foreclosing lender must obtain a Foreclosure Certificate from the Nevada Foreclosure Program before it may schedule the foreclosure sale, which is also known as a trustee sale.  By electing to mediate, the foreclosure process will be delayed until after the mediation hearing is conducted because the Foreclosure Certificate will not be issued until after the mediation hearing.

A word of caution though:  If mediation is waived, the foreclosing lender need only apply for the Foreclosure Certificate after the mandatory 90-day period has elapsed.  The homeowner can waive mediate explicitly or inadvertently.  The homeowner may waive mediation by either (1) sending a completed Waiver of Mediation form back to the Foreclosure Mediation Program Adminstrator; or (2) failing to return a completed Election to Mediate form (including following all instructions) back to the Foreclosure Mediation Program Administrator within thirty (30) days after receipt of the form, which is included in the Notice of Breach & Election to Sell or Notice of Default & Election to Sell sent to the homeowner by certified mail.  In summary, the homeowner loses the ability to mediate if the Election to Mediate form is not completed and returned as required by the instructions. 

For homeowners who do not want to save their homes, the mediation process can still be beneficial.  Again, the mediation process delays the completion of the foreclosure process by delaying the issuance of the mandatory Foreclosure Certificate.  Homeowners can agree during the mediation hearing to "attempt" a short-sale on the home and,in return, the foreclosing lender will typically agree not to finish the foreclosure process for several months.  While the short-sale is pursued (not necessarily accomplished!), the homeowner stays in the home mortgage-free.  A similar result may be available if the homeowner requests a loan modification.  The lender may postpone the foreclosure process while the homeowner is considered for a loan modification if the homeowner agrees to pay a small "rent" payment during the modification review. 

The mediation process may provide the solution for homeowners to save their homes without resorting to bankruptcy.  Additionally, the mediation process may afford homeowners who do not want to save their homes more time in the home mortgage-free. 

Q:  What is the foreclosure process in Nevada and can I monitor it online?

Under Nevada law, the mortgage lender must complete the foreclosure process in order to extinguish a homeowner’s rights of redemption.  Nevada law, specifically N.R.S. §107, establishes the procedures required for foreclosure of homes in Nevada.

The foreclosure process in Nevada takes a minimum of one hundred and eleven (111) days from initiation.  If the lender is lax in initiating the foreclosure process or within the process itself, a homeowner could benefit from additional time in the home mortgage-free. 

The lender typically out-sources the foreclosure process to a Foreclosure Trustee.  There are dozens of foreclosure trustees and/or companies throughout the United States.  Some foreclosure trustees and/or companies that administer foreclosures in Nevada are ReconTrust Company, Cal-Western Reconveyance Corporation, National Default Servicing Corporation, TD Service Company, Trustee Corps, and Executive Trustee Services. 

The foreclosure trustee initiates the foreclosure process by filing a Notice entitled "Notice of Default & Election to Sell" or "Notice of Breach & Election to Sell" with the appropriate county recorder. The foreclosure trustee must send the Notice to the homeowner by certified mail.  Most homeowners receive multiple copies of the Notice by certified mail and first class mail.  Furthermore, it is customary now for foreclosure trustees to tape the Notice on the garage door, front door, or front window of the home in order to provide notice of the foreclosure to renters/tenants (if any). 

The filing of the Notice of Default with the Recorder's Office starts the running of a ninety (90) day period in which the debtor may cure the default.  The lender may elect to accelerate the note before the expiration of this 90-day period, which would make curing the default extremely difficult or impossible.  Upon expiration of this 90-day period, the foreclosure trustee will schedule a foreclosure sale if the default has not been cured.

The foreclosure trustee must then prepare the required "Notice of Trustee Sale" and file the Notice of Trustee Sale with the county recorder.  The foreclosure trustee must also send the homeowner a copy of the Notice of Trustee Sale by certified mail.  Most homeowners receive multiple copies of the Notice of Trustee Sale by certified mail and first class mail. 

The time and date of the foreclosure sale is displayed on the Notice of Trustee Sale. The foreclosure sale, also known as trustee sale, can be conducted twenty-one (21) days after the expiration of the 90-day redemption period.  The actual date of the foreclosure sale is set by the foreclosure trustee.  Most foreclosure sales in Las Vegas are conducted at 10:00 a.m. at Nevada Legal News, which is located at 930 S. 4th Street, Las Vegas, Nevada 89101.

If you want to save your home, you must file for bankruptcy protection before the foreclosure sale is conducted.  Bankruptcy does not permanently halt the foreclosure process unless you file for chapter 13 and repay the mortgage arrears through a chapter 13 plan.  Bankruptcy will delay the foreclosure process on average two months if a chapter 7 bankruptcy is filed before the foreclosure sale is held.

If you live in Clark County, Nevada, you can monitor the recordation of foreclosure documents online.  Because the foreclosure notices must be filed with the Clark County Recorder, you can review property records by visiting the Clark County Recorder's website.   You can search real property records by selecting the Search Records link and accept the terms of use.   You will need the Assessor's Parcel Number to review the filing records on the Clark County Recorder's website.  Please note that the documents themselves are rarely available on the Clark County Recorder's website.  The documents can be accessed directly by visiting the Clark County Recorder at the Clark County Government Center located at 500 S. Grand Central Parkway, 2nd Floor; Las Vegas, Nevada 89106.

Q:  My home went into foreclosure and was sold at a trustee sale.  Now, my mortgage lender claims I owe a deficiency balance.  What is a deficiency balance and what are my options?

A:  A deficiency balance is the amount of the loan that is not satisfied through a foreclosure sale on a house.  A deficiency balance most often occurs when the home sells at foreclosure for a price large enough to satisfy the first mortgage but not the second. 

For example, a home sells at the foreclosure auction for $315,000.00.  The lender is owed $300,000.00 on the first mortgage.  Another lender is owed $50,000.00 for a second mortgage on the same home.  The auction price satisfies the first mortgage but not the entire second mortgage.  As a result, the second mortgage holder is still owed $35,000.00.  The $35,000.00 becomes a deficiency balance because the house was repossessed and sold in an attempt to recover the monies loaned but the home sale did not cover the entire debt owed. 

Please note that in a recourse state, (Nevada, for instance), lenders can pursue deficiency balances.  However, under California law, lenders are  prohibited from pursuing deficiency balances because California has non-recourse laws.  In a non-recourse state, the lender may only look to the collateral (i.e. the home) to satisfy the underlying debt.

If the home foreclosed upon is in Nevada, the lender(s) may pursue the collection of a deficiency balance(s).  Most lenders will make an attempt to collect the deficiency by sending written demand to the former homeowner (and/or mortgagor).  If this collection effort is unsuccessful, the lender has two options: 

1.)  Sue the former homeowner (and/or mortgagor) by initiating a lawsuit in state court.  If the lender is successful, the court will issue a judgment in the lenders favor.  A judgment is an order requiring the mortgagor/former homeowner to pay the deficiency plus court costs, interest, and attorney fees.  The lender will use the order to execute on any non-exempt belongings of the mortgagor/former homeowner, such as bank accounts or 25% of net wages.  The mortgagor/former homeowner can protect his or her belongings by filing an Affidavit of Exemption in the proper court and within the required time frame only if an exemption applies under Nevada law.  (See N.R.S. 21.090 for examples of applicable exemptions)

Pursuant to Nevada law, the foreclosing lender has a limited amount of time to file litigation in order to pursue collection of a deficiency balance.  The foreclosing lender must initiate a lawsuit within six (6) months of the completed trustee sale.  The purpose of the lawsuit is to determine the fair market value of the foreclosed home, which may differ substantially from the price actually received at the foreclosure sale.  If the foreclosing lender fails to do so, the lender is barred by the Statute of Limitations from pursuing collection of a deficiency balance through civil litigation.  The Statute of Limitations must be asserted as a defense in an Answer to the lender's Complaint.  The Answer must be also filed with the appropriate court.  (See N.R.S. 11.190 and N.R.S. 40.455 for specific statutes of limitation). 

Some lenders such as non-foreclosing lenders on second and third mortgages may waive their security interest in the home and pursue a judgment based on the promissory note or contract instead.  Pursuant to N.R.S. 11.190, such lenders would have to bring the action in court within six (6) years from the default rather than within six (6) months as required under the foreclosure deficiency statute.   However, the lender's legal remedies may be limited depending upon the promissory note or contract signed by the homeowner.  In other words, review your contract to determine if there are any conditions or restrictions against the lender suing on the contract itself rather than proceeding against the property directly.

2.)  Forgive the debt and send a 1099 to the mortgagor/former homeowner.  A copy of the 1099 is also forwarded to the Internal Revenue Service which treats the forgiveness of debt as taxable income.  The debt forgiven must be listed as income on the tax return for the year that it was forgiven unless an IRS exception applies. The resulting tax liability will depend upon one’s adjusted gross income and deductions.

The IRS currently recognizes three exceptions which may prevent a tax liability on forgiven debt from arising. The exceptions are limited and include:

*Debt discharged under title 11 (in a bankruptcy);

*Non-business insolvency (where liabilities exceed assets);

*Mortgage deficiency on a primary residence. See Mortgage Forgiveness Debt Relief Act of 2007, enacted December 20, 2007.  This law is extremely complicated, and relief under this law depends on strict applicability.  Consult a tax professional to discuss its applicability and limitations. 

Specific rules apply so consult with your tax professional for more detailed information.  Your tax professional can help determine if an exception applies and if Form 982:  Reduction of Tax Attributes Due to Discharge of Indebtness (and Section 1082 Basis Adjustment) should be filed with the IRS to cancel out 1099s sent by creditors.

ATTENTION:  The tax liability created from the forgiveness of a mortgage deficiency (for which an IRS exception does not apply) cannot generally be discharged in bankruptcy. For this reason, if you have a mortgage deficiency that does not fall within an exception, you must file bankruptcy before the lender writes off the debt and issues a 1099 for the forgiven deficiency balance to avoid incurring a tax liability as a result of the forgiveness of debt. 

Q:  How can bankruptcy help me if my home goes into foreclosure?

A:  Bankruptcy stops the foreclosure process temporarily in most cases.  The creditor can request an order from the court allowing it to proceed with foreclosure after a bankruptcy case is filed.   The creditor will file this request with the court if you stop paying your mortgage payments or if you do not have any equity in the home.  Some debtors use bankruptcy to delay the foreclosure process in order to buy time in the home.  Other debtors use bankruptcy to stall the creditor while a repayment plan can be established under chapter 13. 

The more detailed answer is that it is especially important to understand the foreclosure process in Nevada.

Most real estate loans in Nevada are known as recourse loans.  This means that the lender has recourse in the event of a default.   Pursuant to a promissory note that most homeowners sign to purchase real property, a mortgage lender has the right to foreclose or take back the real property in the event of a homeowner's default.  The most common default events are non-payment and failure to maintain homeowner's insurance.

The homeowner must be in default pursuant to the contract before the lender may initiate foreclosure proceedings. Often, the lender will first transfer the file to the collection department. The collection department will send collection notices and make collection calls for a period of time which varies by lender. In the current housing market, some lenders are more aggressive and make only limited collection demands before sending the file to the foreclosure department. Other lenders make repeated demands over a considerable period of time in the hope that the homeowner will make some arrangements for repayment of the delinquencies. However, lenders will eventually transfer the file from collection to the foreclosure department if the homeowner fails to make payment arrangements.

Under Nevada law, the lender must complete the foreclosure process in order to extinguish a homeowner’s rights of redemption. The foreclosure process in Nevada takes a minimum of one hundred and eleven (111) days from initiation.  If the lender is lax in initiating the foreclosure process or within the process, a homeowner could benefit from additional time in the home rent-free and mortgage-free.

The lender initiates the foreclosure process by filing a notice called the "Notice of Default" with the appropriate county recorder. The lender must send the Notice of Default to the homeowner by certified mail. The filing of the Notice of Default starts the running of a ninety (90) day period in which the debtor may cure the default. Upon expiration of this ninety (90) day period, the lender will schedule a trustee sale if the default has not been cured.

The lender must then prepare the requisite "Notice of Trustee Sale" and file the notice with the county recorder. The lender must also send the homeowner a copy of the Notice of Trustee Sale by certified mail. The time and date of the Trustee Sale is displayed on the Notice. The Trustee Sale can be conducted within twenty-one (21) days after the expiration of the ninety day redemption period. Most trustee sales in Las Vegas are conducted at 10:00 a.m. at Nevada Legal News located at 930 S. 4th Street, Las Vegas, Nevada 89101.

If the trustee sale is completed, title to the property transfers to the buyer at the trustee sale. The homeowner’s interests and rights are thereby extinguished by law. The buyer will shortly thereafter evict the homeowner.

Bankruptcy stops a foreclosure and/or trustee sale but only if the bankruptcy case is filed before the trustee sale. Filing for bankruptcy just prior to the trustee sale buys time either to re-negotiate with the lender or to relocate. The amount of delay will vary but averages two months.

The relief often is short-lived since lenders may file a request with the bankruptcy court asking to resume its foreclosure proceedings. Non-payment of the mortgage is a ground for the granting of the lender’s request. The request is known as a Motion for Relief from the Automatic Stay and requires a hearing. The hearing is scheduled at least twenty (20) days plus mailing time after notice is sent to the homeowner.

If you are behind on your mortgage payments and file for chapter 7 relief, you must either bring the account current upon filing for bankruptcy or negotiate with the lender to put the arrears on the end of the loan. If you have equity in your home, you can try to sell the home to repay the principal and arrears while the bankruptcy case proceeds. Other options available to bring the account current quickly include refinancing the existing mortgage or applying for a home equity line of credit/second mortgage.

Due to the current housing market, the lender may be willing to work with you to keep you in the home. Loan modifications are available in certain circumstances. Most lenders require a hardship letter, current paystubs, current bank statements, and a financial worksheet in order to process a loan modification request. Loan modifications are entirely discretionary. Requests are usually processed within sixty (60) days. Contact your lender directly for further information.

If you are behind on your mortgage payments and cannot bring the arrears current quickly, a chapter 13 reorganization affords you the ability to repay the arrears over three to five years. Filing for chapter 13 will also give you additional time to re-negotiate with the lender or to sell the home to save any equity that you may have.

WARNING: Since you must file for bankruptcy before the trustee sale is conducted in order to save your home, do not wait until the last day to hire an attorney. You may be too late or miss certain filing requirements. One such requirement is that you must receive credit counseling the day before filing for bankruptcy relief. Waiting until the last minute will also increase the cost of the bankruptcy filing since emergency filing fees are charged by most, if not, all local attorneys.

Q: I owe more than my home is worth. I could afford to pay my bills if I did not have the 2nd and 3rd mortgages on my home. Is it possible to wipe out or strip my 2nd and 3rd mortgages? 

A: Yes, it is possible to eliminate second and third mortgages in certain circumstances. The first step to determine which mortgages if any can be stripped off is to accurately value the real property. Most courts will require a formal appraisal from a reputable appraiser in order to establish the value of the subject real property.

The value of the real property must be less than the first mortgage in order to eliminate second and third mortgages. For example, let us suppose that you have a home which appraises at $250,000.00, and have a first mortgage of $270,000.00, second mortgage of $50,000.00, and a third mortgage (home equity line of credit) of $19,000.00. Since the home is worth substantially less than the first mortgage, the second and third mortgages can be stripped off. The rationale is that the second and third mortgages are completely unsecured such that the lenders' liens no longer secure the debt owed. The second and third mortgages as unsecured debt are dischargeable through a bankruptcy case.

Assume, however, that your home appraises at $275,000.00, the first mortgage is $270,000.00, the second mortgage is $50,000.00, and the third mortgage is $19,000.00. In this example, only the third mortgage can be stripped off because the second mortgage is partially secured (security of $5,000.00). A partially secured mortgage cannot be eliminated.

The stripping of mortgages is currently only permitted by Nevada courts in chapter 13 cases. Nevada courts are bound by precedent established by the United States Supreme Court and by the Ninth Circuit which ruled that the United States Bankruptcy Code does not provide any authority in chapter 7 cases for the stripping off or elimination of "unsecured" mortgages.

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