Legal Ease, vol 3

logo-black-lobelloHomeowners and Deficiency actions limitations to third parties

The Supreme Court in a recently decided case, First Financial Bank, N.A. v. Gordon R. Lane, et al., 130 Nev. Adv. Op. 96 (Dec. 2014), clarified NRS 40.451, but more importantly, fortified NRS 40.459(1)(c) and their decisions Sandpointe Apartments v. Eighth Judicial Dist. Court, 129 Nev. ___, ____, 313 P.3d 849, (2013). This is a summation of the Court’s ruling.

In First Financial Bank, N.A., the Court addressed the second sentence of the statute NRS 40.451 and what it means and how it is applied. This is relevant for any foreclosure sales prior to the enactment of NRS 40.459(1)(c) in 2011.

NRS 40.451 states:

As used in NRS 40.451 to 40.463, inclusive, indebtedness means the principal balance of the obligation secured by a mortgage or other lien on real property, together with all interest accrued and unpaid prior to the time of foreclosure sale, all costs and fees of such a sale, all advances made with respect to the property by the beneficiary, and all other amounts secured by the mortgage or other lien on the real property in favor of the person seeking the deficiency judgment. Such amount constituting a lien is limited to the amount of the consideration paid by the lienholder.

The last sentence, “Such amount constituting a lien is limited to the amount of the consideration paid by the lienholder [.]” has recently come under scrutiny as to its meaning and interpretation given the change in the economy and number of foreclosures, sales of deeds of trusts, federal government takeovers, HUD takeovers, FDIC takeovers and subsequent sales to third parties of the notes and deeds of trust at discounts from face value. For the purposes of this article, I will refer to the deed of trust beneficiary as the “Bank”.

As an example, if you purchased a home and financed it through Bank A (original beneficiary), who sells it to Bank B (assigned beneficiary) at a discount off the amount due originally to Bank A, prior to 2011 a question existed as to whether Bank B could collect the face value of the note or if Bank B was limited to what it paid Bank A. Essentially, the Appellant in First Financial Bank, N.A., argued that the last sentence of NRS 40.451 meant that the Bank could not collect on any amounts that were not actually paid out by Bank A or Bank B on behalf of the homeowner. The Respondent argued that the last sentence meant that if the original note was ten dollars, but Bank B purchased it for eight dollars, the most that Bank B could collect at foreclosure was the eight dollars.   The Supreme Court sided with the Appellant, going through a detail of the enactment of the statute, comments made during the enactment in the legislature and statutory construction. Essentially the last sentence is a modifier to the past portion of the first sentence of NRS 40.451, “and all other amounts secured by the mortgage or other lien on the real property in favor of the person seeking the deficiency judgment.”

The Court reasoned that the last sentence, although sits by itself, it references the word “lien”. Further, pursuant to statutory construction that second sentence would modify that portion of the preceding sentence with the word “lien” only. The Court found that although “lien” is mentioned twice in the preceding sentence, when the statute was originally enacted in 1969, the word “lien” only appeared in the last portion. In 1989, the statute was grammatically corrected and the word “lien” was added in the first part of the first sentence. As a result, the only portion of the preceding sentence that the second sentence could refer to and modify is the last portion and as a limitation to those amounts (This is a simplified version of the Court’s opinion).

More importantly, the court further bolstered its opinion in Sandpointe Apartments. It went on to state that if the last sentence of NRS 40.451 was interpreted as the Respondent had hoped, that is to mean that Bank B could only recover the eight dollars (in my example), it would make NRS 40.459(1)(c), enacted in 2011, unnecessary and repetitive.

NRS 40.459(1)(c) states:

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:

(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,… (in pertinent part).

The Court reiterated its ruling in Sandpointe Apartments, and stated that clearly, after 2011, when NRS 40.459(1)(c) was added, the intent was to limit Bank B from obtaining more than they paid for the note and deed of trust when purchased from Bank A.

If any question existed as to the interpretation of NRS 40.451 and 40.459(1)(c), it has been settled by the Court in First Financial Bank, N.A.. Further, in footnote 1 of First Financial Bank, N.A. the Court indicates that the date of the application of NRS 40.459(1)(c) is the date of the actual foreclosure sale date. As a result, the Nevada Supreme court has established that pursuant to NRS 40.459(1)(c), a third party may only recover the amount they paid for the note and deed of trust, and further, the date for applicability of NRS 40.459(1)(c) is the date of the actual foreclosure sale.