WHAT’S TO BE DONE


The real question for you – the homeowners - is: What do we do now? Our home has a mortgage that far exceeds the value or we simply cannot pay the mortgage. We cannot sell it to even meet the balance due. If we can afford the current mortgage payment, we are paying a high price for a devalued property. If we cannot afford the current mortgage, we are sure to be thrown out of our house.

THE PLAN

The first reality is that this is a true dilemma: there are no good answers. The choices are not easy and not attractive; our best path is to make an informed choice among hard alternatives. The psychological problem is that faced with unappetizing options, our first reaction is not to choose at all. The result is, of course, that we are choosing by not choosing. Worse, the “frozen-headlights” approach is likely to lead to negative consequences.

We need control – to the extent we can achieve it. The first step is to make an informed plan. Know what the alternatives really mean, not based on neighbors, co-workers, real estate salespeople or media; rather, the know the actual facts here in Nevada, here in your community. What is a “non-judicial” foreclosure? What is a “mediation”? How long does it take? Can I forestall it? What happens to the debt on the mortgage? What is a “short sale”? Is it a better alternative? Will it be better for my credit rating? How long does it take? Is the debt waived? Are there tax consequences?

How much does it cost to defend a foreclosure? How long will such a defense keep my family in the house? Can I get a modification? Will a modification reduce the principal balance on the loan adjusting my value to market levels?

Whatever you choose to do, make an INFORMED PLAN and execute on it.

THE OPTIONS

Although there are not perfect answers – ones that simply allow you to continue as you have been before the housing crisis – there are choices to make.

If you have a serious default and/or diminished property value, it is unlikely that you will retain the property. The days of simply resuming payments and having defaults put on the end of the loan are gone – long gone. Think it through: If your house has a $300,000 mortgage made up of the Note and unpaid mortgage payments/taxes/insurance and a sales value of $200,000, you have a “deficiency” of $100,000. Unless the value of the property increases by 50% or the lender reduces the principal balance on the loan, you are going to stuck in a financially untenable situation. Moreover, these two options are not going to happen - Period. A modification is possible but not common, and so far, lenders have refused to reduce the principal balance. If you choose to continue to pay the mortgage for the next 15 years, you will still have a deficiency which must be paid to the lender above any sales price in order for the lender to release its security interest. The real choice is foreclosure now or later. The option of a short sale presents its own implications but may be the alternative that works for you.

Foreclosure in the Past: The historical procedure for taking your home in Nevada has been by “non-judicial” foreclosures. Simply put: no court proceeding. Your note (debt on the property) is secured with the title to the property itself (Deed of Trust). This is a traditional “trust” arrangement with a “Grantor” – You; a “Beneficiary” - The Lender; a “Servicer” – entity that pays your mortgage to the Beneficiary; and a “Trustee”, a company which is employed to foreclose on your house. As part of the trust agreement, Deed of Trust, you consent to an abbreviated process, so that if you default, the property can be sold and the proceeds given to pay the Beneficiary. This is the auction on the courthouse steps.

Prior to 2010 there has been little legal activity around non-judicial foreclosures – because there have been few foreclosures at all. The reality changed when the 2009 Nevada Legislature passed a law establishing the right of homeowners to “mediate” with the lenders before a foreclosure sale could occur. The “Foreclosure Mediation Program” was established (NRS 107.086) under the Nevada Supreme Court and developed a legal procedure to manage the process. “Mediation” is a misnomer: this is a confrontation between the homeowner and the lender in which the lender wants to take your property. There may be talk of “modifications” or “non-retention alternatives” but the bottom line is that the lender wants to take your house from you.

This law expired in December 2016 but has been re-enacted in June 2017. It is the current law.

Competent lawyers, including myself, have used the mediation process to forestall foreclosures for the past with significant success. I have done over 300, and the vast majority have resulted in stopping the immediate foreclosure – requiring the lender to restart the foreclosure procedure over with a new Notice of Default. The overwhelming reason is lenders not being able to produce adequate documents. These are only delays; however, the practical consequence is time during which the homeowner stays in the property undisturbed while not paying mortgage or property taxes. The good news is that the mediation practice in the hands of a good lawyer means significant delay to remain and plan/execute; the bad news is that it means no resolution.

The 2017 Nevada Legislature has changed the foreclosure process in several crucial aspects, and the future is somewhat unknown. The process is now in the hands of the local courts for oversight; the administration of the program in now in the executive branch of government; and the housing crisis has evolved from chaos to complexity. There have been several important decisions of the Nevada Supreme Court largely unfavorable to borrowers. The lenders are constantly changing their practices, so that unless you know the current environment, you have little ability to shape or control an outcome.

Two things have not changed: YOU NEED A PLAN and YOU NEED SUPPORT.