One of the main questions our clients have when they receive an approval on a short sale is, “Does it provide a deficiency release?” While this is a fantastic question in that it proves Las Vegans are becoming more aware of their rights and liabilities, the answer we must then give, unfortunately, is not always “yes”. Some lenders simply won’t budge. What then must a person facing a short sale or foreclosure do in order to limit the deficient amount that could later be awarded to the lender should the lender seek a judgment against the borrower?
The deficient amount is the difference between what the lender receives for the property versus what the borrower owes them. Accordingly, if a homeowner is in court arguing with regards to the true value of the deficiency, a homeowner would argue that the lender should only be afforded the difference between what they could have received from the property as opposed to what they actually did receive. What does this mean? Imagine for instance that you have presented the lender with a short sale in the amount of $120,000 and the lender refuses to approve the sale. Due to the lender refusal, the property goes to foreclosure and minus all the extraneous foreclosure fees the lender now only receives $84,000. The amount still owed on the note is $180,000. As such, had the lender accepted the short sale the deficient amount would be $60,000. In consideration of their failure to accept the short sale the deficient amount is now $96,000. It could reasonably be argued before a court of law, or with your lender while trying to settle the debt, that they failed to mitigate damages by allowing the short sale and therefore are not entitled to anything more than $60,000.
While the aforementioned method will not guarantee a lower deficiency judgment, it is a valid argument under Nevada law. The law does state that a contracting party has a duty to mitigate their damages and the lender does not do so when they know that a foreclosure will result in a lower yield and yet they fail to allow the effectuation of a short sale! Therefore, if you want to lower your potential deficiency, it may be best to first attempt a short sale.
Carlos L. McDade, Esq.
Kelle L. Kuebler, Attorney*
*Licensed only in New York and Connecticut
