Bank of America bought Countrywide Financial Corp. in July 2008, just before the financial crisis. Countrywide was a giant in mortgage lending, but was also known for approving risky loans. Fannie Mae and Freddie Mac, which packaged loans into securities and sold them to investors, were effectively nationalized in 2008 when they nearly collapsed under the weight of their mortgage losses.

Bank of America’s purchase of Countrywide originally was lauded by lawmakers because the bank was viewed as stepping in to eliminate a bad actor from the mortgage market. But instead of padding Bank of America’s mortgage business, the purchase has drawn a drumbeat of regulatory fines, lawsuits and losses.

Bank of America said that the loans involved in the settlement have an aggregate original principal balance of about $1.4 trillion. The outstanding principal balance is about $300 billion. Bank of America Corp., which is based in Charlotte, N.C., also said that it is also selling mortgage servicing rights on about 2 million residential mortgage loans. The loans have an aggregate unpaid principal balance of approximately $306 billion.

$10 billion settlement with 14 banks that would end the government’s efforts to hold lenders responsible for foreclosures abuses for faulty paperwork and excessive fees that may have led to evictions, according to people with knowledge of the discussions.

Financial Institution: 1. If the judgment creditor or the beneficiary of the deed of trust who applies for a deficiency judgment is a banking or other financial institution, the court may not award a deficiency judgment to the judgment creditor or the beneficiary of the deed of trust if:
Single Family Dwelling: (a) The real property is a single-family dwelling and the debtor or the grantor of the deed of trust was the owner of the real property at the time of the sale in lieu of a foreclosure sale;
Bought a Property: (b) The debtor or grantor used the amount for which the real property was secured by the mortgage or deed of trust to purchase the real property;
Continuous Occupation: (c) The debtor or grantor continuously occupied the real property as the debtor’s or grantor’s principal residence after securing the mortgage or deed of trust;
Sale to a third party for lesser amount: (d) The debtor or grantor and the banking or other financial institution entered into an agreement to sell the real property secured by the mortgage or deed of trust to a third party for an amount less than the indebtedness secured thereby; and
(e) The agreement entered into pursuant to paragraph (d):
(1) Does not state the amount of money still owed to the banking or other financial institution by the debtor or grantor or does not authorize the banking or other financial institution to recover that amount from the debtor or grantor; and
(2) Contains a conspicuous statement that has been acknowledged by the signature of the debtor or grantor which provides that the banking or other financial institution has waived its right to recover the amount owed by the debtor or grantor and which sets forth the amount of recovery that is being waived.
2. As used in this section:

What is the definition of a financial Institution?
(a) “Banking or other financial institution” means any bank, savings and loan association, savings bank, thrift company, credit union or other financial institution that is licensed, registered or otherwise authorized to do business in this State.
(b) “Sale in lieu of a foreclosure sale” means a sale of real property pursuant to an agreement between a person to whom an obligation secured by a mortgage or other lien on real property is owed and the debtor of that obligation in which the sales price of the real property is insufficient to pay the full outstanding balance of the obligation and the costs of the sale. The term includes, without limitation, a deed in lieu of foreclosure.
(Added to NRS by 2011, 2051)

What is the Limitations on the Amount of Money Judgment?

NRS 40.459 Limitations on amount of money judgment.
1. After the hearing, the court shall award a money judgment against the debtor, guarantor or surety who is personally liable for the debt. The court shall not render judgment for more than:
(a) The amount by which the amount of the indebtedness which was secured exceeds the fair market value of the property sold at the time of the sale, with interest from the date of the sale;
(b) The amount which is the difference between the amount for which the property was actually sold and the amount of the indebtedness which was secured, with interest from the date of sale; or
(c) If the person seeking the judgment acquired the right to obtain the judgment from a person who previously held that right, the amount by which the amount of the consideration paid for that right exceeds the fair market value of the property sold at the time of sale or the amount for which the property was actually sold, whichever is greater, with interest from the date of sale and reasonable costs,
 whichever is the lesser amount.
2. For the purposes of this section, the “amount of the indebtedness” does not include any amount received by, or payable to, the judgment creditor or beneficiary of the deed of trust pursuant to an insurance policy to compensate the judgment creditor or beneficiary for any losses incurred with respect to the property or the default on the debt.

(b) Satisfaction of the obligation being enforced by the foreclosure sale.

(c) Satisfaction of obligations secured by any junior mortgages or liens on the property, in their order of priority.

(d) Payment of the balance of the proceeds, if any, to the debtor or the debtor’s successor in interest.

 If there are conflicting claims to any portion of the proceeds, the person conducting the foreclosure sale is not required to distribute that portion of the proceeds until the validity of the conflicting claims is determined through interpleader or otherwise to the person’s satisfaction.
3. A person who claims a right to receive the proceeds of a foreclosure sale pursuant to paragraph (c) of subsection 2 must, upon the written demand of the person conducting the foreclosure sale, provide:
(a) Proof of the obligation upon which the claimant claims a right to the proceeds; and
(b) Proof of the claimant’s interest in the mortgage or lien, unless that proof appears in the official records of a county in which the property is located.
 Such a demand is effective upon personal delivery or upon mailing by registered or certified mail, return receipt requested, to the last known address of the claimant. Failure of a claimant to provide the required proof within 15 days after the effective date of the demand waives the claimant’s right to receive those proceeds.
4. As used in this section, “foreclosure sale” means the sale of real property to enforce an obligation secured by a mortgage or lien on the property, including the exercise of a trustee’s power of sale pursuant to NRS 107.080.

Note: The time period has been changed to six months by an application or award to a judgment creditors after the sale of the foreclosure sale.

2. If the indebtedness is secured by more than one parcel of real property, more than one interest in the real property or more than one mortgage or deed of trust, the 6-month period begins to run after the date of the foreclosure sale or trustee’s sale of the last parcel or other interest in the real property securing the indebtedness, but in no event may the application be filed more than 2 years after the initial foreclosure sale or trustee’s sale.

Note: this six-month period would run after the date of the foreclosure or trustee’s sale of the last parcel or other interest in the real estate property securing the indebtedness.

3. If the judgment creditor or the beneficiary of the deed of trust is a financial institution, the court may not award a deficiency judgment to the judgment creditor or the beneficiary of the deed of trust, even if there is a deficiency of the proceeds of the sale and a balance remaining due the judgment creditor or beneficiary of the deed of trust, if:
(a) The real property is a single-family dwelling and the debtor or grantor was the owner of the real property at the time of the foreclosure sale or trustee’s sale;
(b) The debtor or grantor used the amount for which the real property was secured by the mortgage or deed of trust to purchase the real property;
(c) The debtor or grantor continuously occupied the real property as the debtor’s or grantor’s principal residence after securing the mortgage or deed of trust; and
(d) The debtor or grantor did not refinance the mortgage or deed of trust after securing it.
4. As used in this section, “financial institution” has the meaning ascribed to it in NRS 363A.050.
(Added to NRS by 1969, 573; A 1979, 450; 1985, 371; 1987, 1345; 2009, 1330)

A mortgage is a two-party transaction. The lender, known as the mortgagee, places a lien on your house. It accepts the mortgage from you, the mortgagor, in exchange for loaning money to purchase your home. If you default, the lender can do a non-judicial foreclosure in which his/her senior interests are superior to anyone else under the purchase money mortgage terms, and supersedes any interests of a junior trust deed.

Deed of Trust is a three-party transaction with three parties:

The three parties are the
(1) beneficiary,
(2) trustor, and the
(3) trustee.

The lender is called the beneficiary because it benefits from the transaction by collecting interest. You are the trustor because you are “trusted” with the money. The final party is the trustee, who holds title for the benefit of the beneficiary. The trustee’s sole function is to initiate the foreclosure at the behest of the lender. Deed of Trust foreclosure does not require a Lawsuit. If you default, the trustee follows procedures agreed to in the Deed of Trust pursuant to the power of sale clause which does not involve the court also known as a Non-Judicial Foreclosure.

Lender can sue you for deficiency after foreclosure
The lender to sue you for any money still owed to it if the auction does not bring enough money to pay off the loan. However, Nevada has adopted antideficiency laws where the deficiency is waived, restricted or time barred.

Nevada Antideficiency laws?
Nevada Revised Statutes 40.451 deals with deficiency. (We are publishing more articles on Nevada antideficiency laws in our additional articles here) Nevada is a deficiency state where the lender may sue a homeowner after foreclosure for the amount the house sold that was less than what was owed. The homeowner will then have to pay the lender any amount that was due on the loan that was not paid off at sale.
However, there is time limit to file the deficiency lawsuit and in Nevada, it must be filed within six (6) months after the foreclosure sale, and the amount of the deficiency judgment is determined by a statutory formula. An appraisal is obtained to determine the actual fair market value on the date of sale. The homeowner is given a credit for the appraised value, or the sales price, whichever is greater.

Guarantors of a purchase-money loan on real property in Nevada should now be entitled to the anti-deficiency protections afforded under NRS 40.455 through 40.459, w which statutes limit the amount of any deficiency judgment to the lesser of either:

1. The amount by which the amount of the indebtedness which was secured exceeds the fair market value of the property sold at the time of the sale, with interest from the date of the sale, or

2. The amount which is the difference between the amount for which the property was actually sold and the amount of the indebtedness which was secured, with interest from the date of sale.

The Nevada legislature has recently enacted Nevada Assembly Bill 273, which provides a third subsection with applicability in situations where a foreclosing lender “acquired the right to obtain the judgment from a person who previously held that right”, such as where an originating lender sell a note to a third party lender. In such a situation, the deficiency amount is limited (beyond the amounts described in NRS 40.459(1) and (2), described above), to also include the further limitation to any available deficiency that: “If the person seeking the judgment acquired the right to obtain the judgment from a person who previously held that right, the amount [of deficiency recoverable is limited by the amount] by which the amount of the consideration paid for that right exceeds the fair market value of the property sold at the time of sale or the amount for which the property was actually sold, whichever is greater, with interest from the date of sale and reasonable costs, whichever is the lesser amount.” The intent of the Nevada legislature was clearly to provide certain protections to guarantors.

The Nevada Supreme Court has expressly held that guarantors are entitled to the benefits of Nevada’s anti-deficiency legislation, stating that without such protection, the court “would thereby detach lenders from the deficiency standard imposed by the legislature and subject guarantors to the vagaries of a lender’s scruples in every transaction.” First Interstate Bank of Nevada v. Shields, 102 Nev. 616, 619, 730 P.2d 429 (1986) (emphasis supplied). The Ninth Circuit, applying the Shields decision, has similarly held that guarantors are entitled to the benefits and protections of Nevada’s anti-deficiency legislation. FBW Enterprises v. The Victorio Company, 821 F.2d 1393, 1394-95 (9th Cir. 1987).

The Nevada legislature has recently enacted new legislation aimed at avoiding the scenario of a lender suing a guarantor without first foreclosing. Under Nevada Assembly Bill 273, signed by the Nevada Governor on June 10, 2011, the following language was added to NRS 40.495:

(4) If, before a foreclosure sale of real property, the obligee commences an action against a guarantor, surety or other obligor, other than the mortgagor or grantor of a deed of trust, to enforce an obligation to pay, satisfy, or purchase all or part of an indebtedness or obligation secured by a mortgage or lien upon the real property:

(a) The court must hold a hearing and take evidence presented by either party concerning the fair market value of the property as of the date of the commencement of the action. Notice of such hearing must be served upon all defendants who have appeared in the action and against whom a judgment is sought, or upon their attorneys of record, at least 15 days before the date set for the hearing.

(b) After the hearing, if the court awards a money judgment against the debtor, guarantor or surety who is personally liable for the debt, the court must not render judgment for more than:

(1) The amount by which the amount of the indebtedness exceeds the fair market value of the property as of the date of the commencement of the action; or

(2) If a foreclosure sale is concluded before a judgment is entered, the amount that is the difference between the amount for which the property was actually sold and the amount of the indebtedness which was secured, whichever is the lesser amount.

Deficiency Judgments
The lender has the right to sue the borrower for the deficiency within six months after the date of the foreclosure sale, unless all of the following conditions are met:
• The mortgage lender is a financial institution.
• The property securing the mortgage is a single-family dwelling.
• The borrower was the owner of the property at the time of the foreclosure sale.
• The borrower used the proceeds of the mortgage to purchase the property.
• The property was the borrower’s primary residence continuously after the borrower took out the mortgage.
• The borrower did not refinance the mortgage.

If all of these conditions are met, the homeowner is not liable to the lender for any deficiency remaining after the foreclosure sale. Nev. Rev. Stat. § 40.455.
The amount of the deficiency is limited to the lesser of these two amounts:
• The difference between the amount of the outstanding mortgage debt and the property’s fair market value at the time of the foreclosure sale, or
• The difference between the amount of the outstanding mortgage debt and the foreclosure sale price. Nev. Rev. Stat. §40.459.

Summary of NV Laws Nonjudicial Not if all of the following conditions are met: (a) lender is a financial institution; (b) mortgage loan originated on or after October 1, 2009; (c) property securing mortgage is a single-family dwelling owned by borrower at the time of the foreclosure sale; (d) mortgage debt was used to purchase the property; (e) property was borrower’s primary residence continuously from the time mortgage was executed; and (f) borrower did not refinance the mortgage. Allowed in all other foreclosures, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price.

How to Locate Nevada’s Foreclosure Laws
The citation to Nevada’s foreclosure law is Nevada Revised Statutes Sections 40.430 to 40.463 and 107.080 to 107.110. Judicial foreclosures are covered in Sections 40.430 to 40.463, and nonjudicial foreclosures are covered in Sections 107.080 and 107.110.

Nevada’s foreclosure statutes can be found in “Chapter 40: Actions and Proceedings in Particular Cases Concerning Property.”
• Scroll down to find Sections 40.430 to 40.450, which are listed under the heading “Actions for Foreclosure of Real Mortgages,” and Sections 40.451 to 40.463, which are listed under the heading “Foreclosure Sales and Deficiency Judgments.”

To find Sections 107.080 to 107.110, follow steps one through three above, click “Chapter 107: Deeds of Trust,” then scroll down to the sections listed under the heading “Default and Sale.”

Summary of Nevada’s Foreclosure Laws
A summary of the most important information in Nevada’s foreclosure laws relevant to residential homeowners is presented below. Because nonjudicial foreclosures are the most common type of foreclosure in Nevada, this information focuses on nonjudicial foreclosures. “Mortgage lender” refers to the bank or financial institution holding the mortgage, and “borrower” refers to the residential homeowner.

Nonjudicial Foreclosure
A mortgage lender does not need to sue the borrower in court to foreclose. Once a borrower has defaulted on his or her mortgage, the lender has the right to sell the property securing the mortgage, subject to certain requirements. Nev. Rev. Stat. § 107.080.

Borrower’s Right to Cure
A homeowner has up to five days prior to the date of the foreclosure sale to prevent the foreclosure sale by making any missed payments on the mortgage or by curing any other deficiency, as well as paying for the mortgage lender’s foreclosure fees or expenses. Nev. Rev. Stat. § 107.080.

Notice Requirements
The mortgage lender must file a notice of breach and election to sell with the office of the recorder in the county where the property is located. This notice must be recorded at least three months before the date of the foreclosure sale. Nev. Rev. Stat. § 107.080. After this three-month period expires, the mortgage lender must file the notice of sale with the county recorder, as well as deliver the notice of sale to the borrower by registered or certified mail, post the notice for 20 days in three public places, and publish in a newspaper a copy of the notice once a week for three consecutive weeks. Nev. Rev. Stat. § 107.080.

Along with the notice of default and election to sell, the mortgage lender must provide the borrower the following information:
• Contact information for the person authorized to negotiate a loan modification on behalf of the lender
• Contact information for at least one local housing counseling agency; and
• A form on which the borrower may elect mediation. Nev. Rev. Stat. § 107.086.

Mediation
The mortgage lender is required to notify the borrower of the availability of mediation. If the homeowner requests mediation, the lender may not take further action to foreclose on the property. Nev. Rev. Stat. § 107.086. If your goal is to delay foreclosure as long as possible, it is in your best interest to elect mediation.

Right of Redemption
In nonjudicial foreclosures, homeowners do not have a right of redemption. Nev. Rev. Stat. § 107.080(5).

Nevada’s One-Action Rule
Under Nevada rules, if a foreclosing lender wants to collect a deficiency judgment, it must use the judicial foreclosure process because state law limits it to one action against the borrower. A deficiency judgment may be wrapped into a judicial foreclosure but not with a non-judicial foreclosure. If the foreclosing lender owns both the first and second mortgages, then it must use the judicial foreclosure process to collect any remaining debt associated with either the first or first or second mortgages.

Lien Wiped Out But Not Debt
If the lenders of the first and second mortgages of a Nevada mortgage are different, the first mortgage holder will foreclose and the second will not. The second mortgage is wiped out as a lien in the foreclosure. However, the underlying debt and agreement between the borrower and lender remains if the mortgage was a recourse debt. Because the second mortgage holder did not participate in the foreclosure, it is still allowed its “one action” against the borrower to recover the debt. The second mortgage holder is able to file a lawsuit against the borrower for his failure to repay the debt. This is an action unrelated to foreclosure.

A second mortgage is a loan that was obtained after another mortgage loan secured by the same property. The general purpose of providing mortgage security on a loan is to give the lender the right to foreclose if the borrower stops making payments. The problem with second mortgages is that the foreclosure rights under a second mortgage are inferior to the foreclosure rights of the first mortgage loan. Foreclosure on a first mortgage loan may eliminate the second mortgage loan.

Notice
The first mortgage lender and second mortgage lender each has a mortgage lien on the same piece of property. When a mortgage lender forecloses, the lender has to involve all parties holding an ownership or lien interest in that property. Therefore, if the first mortgage lender initiates foreclosure on the property, it must involve the second mortgage lender in that foreclosure process. In judicial foreclosure, this means the second lender must be a party to the foreclosure lawsuit, while in nonjudicial, or power of sale, foreclosure, this means the foreclosing lender has to provide notice to the second lender.

Lien Elimination
When a mortgage lender forecloses, the lender causes the secured property to be sold at a public auction. The purchaser at the auction acquires whatever right the foreclosing lender had in the property at the time when the mortgage loan first attached to the property. By definition, a second mortgage lien does not attach to the property until after the first mortgage lien has attached to that property. Accordingly, foreclosure on a first mortgage loan results in the discharge and elimination of the second mortgage lender’s lien on the property.

Right to Proceeds
A foreclosure sale produces sales proceeds that can be used to pay off liens on the property sold. In some foreclosures, the sales price may be high enough to pay off the first mortgage lien, but not any other liens in the property. In fact, most foreclosure sales result in the mortgage lender making a credit bid equal to the amount due on the mortgage loan, which means the sales price is exactly equal to the payoff balance on the first mortgage. As a result, there is no extra money to pay off the second mortgage lender, so the second mortgage lender remains unpaid and loses its lien on the property. But, if the sales price is high enough, there may be enough money to pay off the first mortgage plus some or all of the second mortgage.

Lien Protection
A second mortgage lender’s only option to protect its lien on the property is to pay off the first mortgage before the foreclosure sale. The second mortgage lender has the right to pay the first mortgage lender the total balance due on the first mortgage loan. If that happens, the first mortgage lien is paid off, thereby causing the second mortgage lien to move into the position of first mortgage lien. However, this option requires the second mortgage lender to come up with the cash necessary to pay off the first mortgage.

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