March 29, 2011: Today I testified as an expert in front of the Nevada Senate on Senate Bill 346. Right now, the law only prohibits deficiency judgments for mortgages taken out after October 2009. The new bill requires lenders to waive deficiency judgments for all mortgages. That essentially alters prior agreements between the homeowner and lender, so the bill may not be constitutional, and I don’t think it will pass, but it’s worth a shot:
Legislative Counsel’s Digest of S.B. 346:
Under existing law, after a foreclosure sale or trustee’s sale of real property which secured an obligation, the creditor or beneficiary of the deed of trust may obtain, after a hearing, a deficiency judgment if there is a deficiency of the proceeds of the sale and a balance remaining due to the creditor or beneficiary of the deed of trust. However, existing law prohibits a court from awarding a deficiency judgment with respect to an obligation secured by a mortgage or deed of trust created on or after October 1, 2009,
This new bill prohibits such a deficiency judgment regardless of the date on which the obligation secured by the mortgage, deed of trust or other encumbrance on real property was created, unless a deficiency judgment with respect to that obligation is awarded before the effective date of this bill.
I stated to the Senate: “At no time in U.S. history has a U.S. city ever survived a period where most of the homeowners are underwater. Negative equity creates unstable neighborhoods. When a person has a $300,000 mortgage and is $100,000 underwater, and his neighbor just bought the house next door for $150,000, the two neighbors do not feel the same about the neighborhood.
When your house goes underwater, you can’t sleep as long as you own your home….”