The Nevada Legislature ended its 2015 session on June 1. The Nevada Legislature meets in odd numbered years for 120 days, so it will not meet again until 2017, unless the Governor calls a special session. The Legislature enacted several significant amendments to the Nevada Revised Statutes that affect creditors’ rights in connection with real estate loans.
Deficiency Rights of Note Purchasers.
In 2011, the Nevada Legislature enacted a statute which provided that the purchaser of a note secured by Nevada real estate could only obtain a deficiency against a borrower or a guarantor based on the amount paid for the note (not the amount actually owed to the seller of the note that was purchased), less the fair market value of the property. As a result, if the purchase price for the note was less than the value of the property, the purchaser had no deficiency rights and was essentially purchasing a non-recourse loan. This had a significant impact on note purchase transactions in Nevada.
This law has been the subject of extensive litigation including two published Nevada Supreme Court decisions and a published U.S. District Court decision. In Sandpointe Apartments, LLC v. Eighth Judicial District, 313 P.3d 849, 129 Nev. Adv. Rep. 87 (2013), the Nevada Supreme Court ruled on the retroactivity of the statute, holding that it could not be applied to deficiencies arising from a foreclosure sale that occurred prior to June 10, 2011. In Munoz v. Branch Banking and Trust Company, 131 Nev. Adv. Rep. 23 (2015), the Nevada Supreme Court held that the statute could not be applied to parties that purchased notes from the Federal Deposit Insurance Corporation as the receiver of a failed bank because it was pre-empted by federal law. In Eagle SPE NV I, Inc. v. Kiley Ranch Communities, 5 F. Supp. 3d 1238 (D.Nev. 2014), the U.S. District Court held that the statute would be unconstitutional if applied retroactively to assignments that occurred before the date of its enactment, June 10, 2011.
In the 2015 session, the Legislature amended this statute in Assembly Bill 195 which became effective on May 25, 2015. This Bill limited the application of the restriction on deficiency actions by a note purchaser to debts that are secured by owner occupied real property on which the debtor, guarantor, or surety maintains his or her principal residence. The limitation applies to promissory notes or guaranties which were fully executed on or after July 1, 2011. This enactment restores to note purchasers rights that they held until the 2011 legislation so that now, unless the loan is secured by owner occupied residential property, the note purchaser can recover a deficiency as otherwise provided in Nevada law.
Enhanced Notice and Redemption Procedures for HOA Super-Priority Lien
Another Nevada statute which has led to extensive litigation, including the Nevada Supreme Court decision in SFR Investments Pool I, LLC v. U.S. Bank, N.A., 334 P.3d 408, 130 Nev. Adv. Rep. 75 (2014), was amended in the 2015 legislative session. The SFR Investments Pool I, LLC decision holds that a homeowners’ association (HOA) assessment lien has priority over a first mortgage to the extent of nine months of assessments. Nonetheless, the statute is currently the subject of substantial litigation asserting the statute’s invalidity on various constitutional, and other, grounds Several other states have similar laws. The super-priority lien can also apply to commercial properties under certain circumstances.
This statute has resulted in extensive litigation in Nevada between purchasers of properties at HOA foreclosure sales and the holders of first mortgages. One issue that has arisen is whether the super-priority lien can be applied adversely to the interests of the holders of mortgages that are owned, guaranteed or insured by agencies or instrumentalities of the federal government. The Federal Housing Finance Agency issued statements dated December 22, 2014 and April 21, 2015, taking the position that an HOA foreclosure sale is invalid and contrary to federal law to the extent that it purports to extinguish property rights of Fannie Mae and Freddie Mac, and commenced action in federal court to attack such sales and protect Fannie Mae and Freddie Mac’s interests in the mortgages. The U.S. District Court recently ruled in favor of Fannie Mae in one of the cases, finding that Fannie Mae’s deed of trust was not extinguished by the HOA foreclosure sale. Skylights LLC v. Byron, Case No. 2:15-cv-00043-GMN-VCF (D. Nev. June 24, 2015).
The 2015 Nevada legislation maintains the super-priority lien, but substantially strengthens the requirements for notice to the first mortgage holder. The legislation also provides for specified collection costs to be included in the amount secured by the super-priority lien, and clarifies that the first mortgage holder can avoid losing the property to an HOA foreclosure if it pays the super-priority amount of the lien prior to the HOA foreclosure sale, or within 60 days thereafter.
Deficiency Actions Against Guarantors.
Nevada law provides that a lender of a secured real estate loan may commence an action to collect a deficiency against the guarantor, without first commencing or concluding a foreclosure sale, but the recovery is limited to a deficiency on the loan calculated based on the value of the property on the date the action is filed. Nevada law also provides that the lender must make application for the deficiency within six months after any foreclosure sale (if a sale occurs while the action against the guarantor is pending). The 2015 legislation clarifies that a complaint or other pleading to collect the indebtedness or obligation which was filed before the foreclosure sale satisfies the requirement of making such application. Although this is a procedural issue, it has resulted in extensive litigation in the Nevada courts including the Nevada Supreme Court decision in Lavi v. Eighth Judicial District, 325 P.3d 1265, 130 Nev. Adv. Rep. 38 (2014).
Sunset for Foreclosure Mediation Program.
In 2009, Nevada enacted a mediation program for foreclosures on owner-occupied residential property. Legislation enacted in the 2015 session provides that the program will terminate on June 30, 2017.
