How the foreclosure process works in Nevada

Foreclosure is a hot topic in today's economy. The number of foreclosures has increased to the point where it's an epidemic. This has created a huge negative impact on real estate prices. In the current market over half of the real estate sales each month are related to a loan default - either as bank owned property (REO) or as a short sale.

In the Western United States most real estate loans are made using a deed of trust instead of a mortgage. The lender does not have to go through court to foreclose on a deed of trust. This is commonly referred to as a non-judicial sale. In those states which use a mortgage instead of a deed of trust, the foreclosure must go through a court proceeding, and the borrower is often given a right of redemption - that is, a right to get the property back within a limited period of time by paying off the loan.

Lenders in Nevada prefer a deed of trust because it avoids the necessity of going to court and it avoids the right of redemption.

A Deed of Trust is a loan document which involves three different people:

1. The Trustor is the borrower.
2. The Trustee holds the title to the property as collateral during the term of the loan. The Trustee is often a Title Company or an affiliate of the lender.
3. The Beneficiary is the lender who benefits from the collateral if the loan is not paid.

To create a Deed of Trust the Trustor transfers a security interest in the property to the Trustee for the benefit of the Beneficiary. The Trustor agrees that if the loan is not paid as agreed, then the Trustee has the right to sell the property following a procedure required by Nevada law. See NRS 107.080

If the loan is paid off, the Trustee reconveys the security interest in the property to the persons who are then the owners.

When the borrower defaults on loan, the beneficiary can instruct the trustee to start foreclosure. Legally this can happen if the payment is one day late, but usually institutional lenders (banks and mortgage companies) wait for the loan payments to be three months late before telling the trustee to start foreclosing. In this economy some banks are waiting even longer than three months before starting.

To start the foreclosure, the beneficiary instructs the trustee to record and serve a "Notice of Default and Election to Sell" ("NOD"). "Record" means to file a copy with the local County Recorder. The day the NOD is recorded two time periods start running.

For non-owner occupied housing, the first time period is a 35-day period. During that time the borrower has the absolute right to pay the late payments and collection fees in order to stop the process. In theory, if the 35 days go by with no payment, the lender has the right to insist that the entire loan be paid off before stopping the foreclosure. In this economy, most lenders are happy to accept back payments and reinstate the loan until shortly before the property is sold.

In 2009, for owner occupied housing,the Legislature expanded the period to cure the default from 35 days after the Notice of Default to 5 days before the Trustee's sale, it imposed additional notice requirements to the home owner, and it imposed a mandatory foreclosure mediation process. See NRS 107.085 and NRS 107.087. For more information, click here to go to the foreclosure-mediation page.

The second time period is a 3-month period which also starts running when the NOD is recorded and mailed to the borrower. The lender has to wait for 3 months before it can proceed to finalize the foreclosure. This 3-month period is designed to give the borrower a chance to raise the money to pay off the loan before losing the property.

After the 3-month period, the lender can instruct the trustee to proceed with a sale of the property. The trustee has to give a "Notice of Trustee's Sale" to the borrower and the public stating when and where the sale will be conducted. The Notice of Trustee's sale has to be mailed to the borrower, posted in 3 public places in the community, and published in the local newspaper. The mailing and first publication of the Notice of Trustee's sale must be at least 20 days before the sale. The sale is usually held on the courthouse steps.

At the trustee's sale the property is sold to the highest bidder. The lender which is foreclosing can put in a credit bid up to the amount of the unpaid balance, including principal, interest, late fees, and publication fees. The trustee will deed the property to the highest bidder. If no one bids higher than the opening bid set by the lender, the trustee deeds the property back to the lender.

If anyone is in possession of the property after the trustee's sale, the purchaser can cause the occupants to be evicted after a 3-day notice. NOTE: This has changed for tenants, who now have up to 60 days. Look for a further update.

What About Bankruptcy?

Bankruptcy doesn't make the foreclosure go away. It just slows it down. When a bankruptcy is filed, there is an automatic stay order which goes into effect and stops all collection actions for the time being. After the bankruptcy filing, the lender may have a right to appear in bankruptcy court to request a "lift stay order." The creditor has to show that payments aren't being made and that its collateral is being impaired by reason of the delay. The borrower may be able to defeat the motion for lift stay by paying the loan payments which become due after the filing of the bankruptcy petition.

This explanation is in very general terms. Bankruptcy law practice is very much specialized. If you have any questions about bankruptcy, you should consult an attorney who specializes in bankruptcy. Our office does not handle bankruptcy cases.

AB 129 -New loan modification rules for foreclosing on owner occupied housing.

Foreclosure v. Short Sale Which Is Better?

Short sale - What is it and how does it work?

Deficiency Judgment - If you're upside down, the bank can sue you for the difference.

Deed in Lieu of Foreclosure - Is it an acceptable alternative?

What happens after the trustee's sale? - How long can you stay in possession?

Our firm is knowledgeable about foreclosures, and we would be pleased to assist you in this area. Please contact us for a consultation by clicking here.