Nevada requires that a deed of trust be used to secure a real estate loan. Although commonly referred to as a mortgage, a deed of trust has significant differences from a mortgage. In addition, states using deeds of trust differ among themselves in their requirements.
All mortgages are two-party instruments between the lender and the borrower. Foreclosure of a mortgage requires the lender to file a complaint with the appropriate court and proceed through the judicial process. Anecdotal reports from mortgage states such as Ohio indicate that borrowers can delay these cases for years. The process is slow and expensive.
Deeds of trust are three-party instruments. There is a beneficiary who is the lender, a trustee who is a third party responsible for the foreclosure process including filing the Notice of Default and related documents, and the trustor who is the borrower. A foreclosure of a deed of trust does not require that a court case be filed. It is fast and inexpensive compared to a mortgage foreclosure.
In Nevada, the foreclosure process begins with the filing of a notice of default by the trustee. The borrower has 35 days from that date to bring the delinquent payments current together with the lender’s costs and fees. Starting on the 36th day, to prevent foreclosure the borrower must pay the entire principal balance owing together with interest and any additional amounts owing for fees and costs. 21 days prior to the trustee’s foreclosure sale the trustee must publish a notice of the sale once each week and also post the notice. At the end of 111 days the property may be sold at the trustee’s sale. The borrower has no right of redemption after the sale.
Nevada was a full recourse state until October 1, 2009. This meant that the foreclosing lender had six months to file a complaint against the borrower seeking the recovery of the deficiency after the sale. After the six month period lapses the lender was barred from filing suit to recover the deficiency. Full recourse means that the borrower is liable for the deficiency regardless of the purpose of the loan. There is no exemption for loans used to purchase an owner occupied residence.
Effective October 1, 2009, Nevada became a limited recourse state similar to California. Loans made after October 1, 2009 by a financial institution to a borrower who continuously occupied the property as a primary residence were nonrecourse. This means that the lender may not pursue a foreclosed borrower to recover a deficiency.
Nevada recently joined the small number of states that entitle the borrower receiving a notice of default to request mandatory mediation with the lender. This applies to all primary residences receiving a notice of default starting July 1, 2009.
Tisha Black Chernine, Esq.