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Foreclosures, Short Sales, and Deficiency Liability

Reno Foreclosure Lawyers

Depending upon your particular financial situation, it may make sense to walk away from a home if you are upside-down on the mortgage and can’t afford your payments. A short sale may be another viable option. In either case, you will want to be sure to avoid liability for the deficiency if you can. The foreclosure lawyers at Darby Law Practice, Ltd. can advise you on the best procedure to follow in your particular case through a foreclosure, short sale negotiation, or bankruptcy solution that best meets your needs.

Nevada Home Foreclosure Process

Generally speaking, the actual foreclosure process under Nevada law takes about four months from the date it is formally initiated until the property can be sold. If this process is underway but you want to keep the house, filing for bankruptcy may be your best solution. The foreclosure process is formally started by the recording of a Notice of Default with the local county recorder’s office. A copy of the notice is mailed by the homeowner by certified and first-class mail. Ninety days after the notice is recorded, the mortgage holder sets date for the sale of the property by recording a Notice of Sale. This notice must provide at least 20 days’ notice of the sale.

Reno Short Sales

A short sale is simply a sale of real estate for less than the amount of the outstanding debt secured by the property. In today’s world, particularly in northern Nevada, the odds are that if a property is selling, it is being done through a short sale.

A foreclosure allow you to walk away from the home right away, while a short sale can still take many months to complete. A short sale may still have benefits to you versus a foreclosure, including the ability to negotiate away the liability for any deficiency.

Foreclosures, Short Sales, and Deficiency Liability

In the case of either a foreclosure sale or a short sale, the sale price of the home may not have been enough to cover the outstanding balance owed on the mortgage. This means there is a deficiency, and under Nevada law, the homeowner may be held liable for that deficiency in certain circumstances. After a foreclosure sale or short sale is completed, a mortgage holder has six months to file a lawsuit for the deficiency balance.

The six-month window includes the first mortgage holder as well as any second or junior mortgage holders or the holder of a secured home equity line of credit. Since junior mortgage holders rarely receive anything out of the foreclosure or short sale process, they are unlikely to release their debt as part of the process. If you think you are going to be stuck with a deficiency liability from either your first or second mortgage, bankruptcy may be a more attractive alternative. Through bankruptcy, you can strip away a second mortgage for a home that is underwater, or even stop a foreclosure completely while reducing your mortgage balance to yield a more manageable monthly payment.

You may have other options besides choosing between short sale or foreclosure. Depending upon how soon you contact your bankruptcy attorneys, we may be able to advise you regarding a loan modification or foreclosure avoidance, which may work to keep you in your home if that is the best option. Of course, if a Chapter 7, Chapter 11, or Chapter 13 is your best solution, we can help you there as well.

Reno Short Sale Attorneys

The most important thing to consider when choosing to let a property go through either a foreclosure or a short sale is your exposure to resulting deficiency liability. The six-month limit to collecting this liability applies either way. However, short sellers must be sure they are not signing a new promissory note as part of the short sale, which would give the lender six years to collect. For this and other reasons, it is strongly encouraged that anyone conducting a short sale hire legal counsel to review and explain all the ramifications of the short sale documents. In Reno, contact Darby Law Practice for a free consultation.


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