By some estimates, as much as 75 – 80 percent of homes in the Las Vegas area are “under water,” meaning the homes are worth less than the loans on them. The sharp decline in home values has many homeowners wondering what the risk is of just walking away. Nevada is a recourse state, which means that it allows lenders to pursue the difference between the balance owed on a mortgage loan and what the lender sells the house for at auction. That difference is known as the “deficiency,” and Nevada allows lenders to pursue deficiency judgments against homeowners.
Lenders have only six months after the house sells at auction to file suit against the homeowner for the deficiency balance. NRS 40.455. After that six months has passed, the lender is time-barred from bringing suit and then homeowner in the clear. So, if you have been foreclosed on more than 6 months ago, you should no longer be at risk of being pursued for the deficiency, unless your case involves extenuating circumstances.
If you purchased your home after October 1, 2009, a recent Nevada law, AB 471, protects you against deficiency liability. NRS 40.455(3). Although the law did provide Nevada’s beleaguered homeowners some measure of protection, it does not shield the homeowners who likely face the largest deficiencies — those who bought during the real estate boom years circa 2002 to 2008. People who bought during those years purchased at the height of the market — when many of in the valley thought real estate could only continue rising. Now, many of these people face bottomed-out home values, an abysmal labor market, and mortgage payments based on a different economic climate. It is a painful situation.
Now for the good — well, at least better — news. Many lenders are not actively pursuing deficiency judgments. Or, perhaps more accurately, many lenders realize that most homeowners in this situation have nothing to go after even if they get the deficiency. And, given the magnitude of the foreclosure problem in the Las Vegas area, some lenders simply cannot pursue every deficiency. Instead, they only spend their time pursuing homeowners where there is a reasonable prospect of recovery.
Some banks also will settle deficiency balances for something far less than the actual amount. If you are considering walking away and have some savings, you may be able to settle your deficiency balance for much less than you think. You can be proactive and talk to the bank before you walk away, or, if you can stomach it, you can take a wait-and-see approach. If the lender lets you know it’s going to come after you, then it’s time to deal.
Of course, retaining skilled legal counsel can help you navigate this predicament. You should be aware of all of your options. In some cases, bankruptcy may even be a viable solution if you’re facing a deficiency you simply cannot pay. Most importantly, make sure you have a strategy that makes sense for your specific situation before taking action.