A new Nevada law effective July 1, 2011, AB 273 virtually eliminates the six (6) YEAR statute of limitations for second mortgages. Now, lenders have only six (6) MONTHS to file a lawsuit for a deficiency judgment after either a short sale or foreclosure sale. That six (6) months applies to second mortgages. In other words, after a short sale or foreclosure sale the lender only has six (6) months to come after you for the second mortgage. The new law does not effect first mortgages.
Can reducing the time frame to file a law suit really measurably change real estate in Nevada? Just like the temporary “excitement” surrounding HAFA a couple of years ago, AB 273 will likely generate temporary excitement, but die down…to possibly nothing. After all, the law still doesn’t address negative equity which is the real problem.
1. The banks will sue sooner. If the banks want to sue a homeowner to collect on a second mortgage they will have to move quickly- within six (6) months of the sale of the home. The banks will no longer have the luxury of waiting a few years for the economy to turn around and the homeowner to get a job and become solvent. It could, in theory, cause a flury of lawsuits.
2. The banks may forego filing a lawsuit. If the banks don’t move quickly they will miss their opportunity to file suit. Some deficiency judgments may be barred by the shorter statute of limitations.
3. The resale aftermarket for second mortgages will decrease. Deliquent HELOCs and second mortgages are bought and sold just like credit card debt. Second mortgages will be worth less, far less, because the purchaser of the second mortgage will have only six (6) months to sue instead of six (6) years. Purchasers of second mortgages, usually bill collectors or law firms, generally buy second mortgages in bulk and slowly begin filing lawsuits on them. Far fewer bill collectors will buy delinquent notes if they have only six (6) months to collect.
4. Portions of the new law could be overturned by a judge since it is arguably retroactive. Also, a judge could “interpret” the law differently than me. The lender might challenge the law and argue that it effects second mortgages that were taken out several years ago. At the time those mortgages were taken out, the lender assumed that it had six (6) years to sue in the event the homeowner defaulted. Quite possibly, the lender would not have made the loan had it known that it really only had six (6) months to sue. Thus, the law is affecting the rights of parties who have previously entered into a private contract and is thus, “ex post facto” unconstitutional and should be stricken.