Creditors’ Deficiency Rights Impacted by Recent Nevada Supreme Court Opinion in Sandpointe Apartments, LLC v. Eighth Judicial District Court

by Snell & Wilmer
Contact

On November 14, 2013, in Sandpointe Apartments, LLC v. Eighth Judicial District Court, 129 Nev. Adv. Op. 87 (Nov. 14, 2013), and in Branch Banking and Trust Co. v. Neilson,  (Nov. 14, 2013) (unpublished), the Nevada Supreme Court interpreted a recent Nevada statute enacted in 2011 which significantly affects creditors’ deficiency rights.

On June 10, 2011, Nevada enacted Assembly Bill 273 (“AB 273”), codified as NRS 40.459(1)(c), which limits the ability of a creditor who purchases a loan secured by Nevada real estate to recover a deficiency. Prior to AB 273, a lender could obtain a deficiency judgment equal to either: (a) the difference between the amount owed to the lender and the amount bid at the foreclosure sale; or (b) the difference between the amount owed to the lender and the market value of the property, whichever results in the smallest deficiency. AB 273 modified this rule in cases where the note had been sold by basing the deficiency calculation on what the lender paid for the loan rather than the amount owed on the loan. Since this statute became effective, countless borrowers and guarantors have asserted that AB 273 limits or even eliminates their liability on loans that were sold prior to the enactment of AB 273.

In the recent decisions, the Nevada Supreme Court held that NRS 40.459(1)(c) did not apply retroactively to loans that had been transferred if a foreclosure sale of the loan collateral occurred before June 10, 2011, the effective date of AB 273. In those cases, the Nevada Supreme Court concluded that the purchaser of the loan was entitled to recover a deficiency judgment in the amount authorized before the enactment of AB 273 because AB 273 was not intended to be applied retroactively. The Nevada Supreme Court also reasoned that a foreclosure sale of the encumbered property is the event that vests the lender’s right to deficiency.

Applying the reasoning of these decisions, the Nevada courts are likely to hold (subject to other issues discussed below) that if any loan secured by real property in Nevada has been sold, and the foreclosure sale occurred after the June 10, 2011, the effective date of AB 273, the amount of the deficiency is limited to the amount paid for the loan rather than the unpaid balance of the loan (less the foreclosure bid or value of the property). Counsel for borrowers and guarantors may argue that deficiencies are limited to the amount paid for the loan if the loan was made or sold before AB 273 was enacted, but the collateral was foreclosed upon afterwards. 

Sandpointe, however, expressly left open other challenges to AB 273. In footnote 4 of the opinion, the Nevada Supreme Court stated that the statute presented several potential constitutional and procedural issues, such as whether AB 273 violates the Contracts Clause and is pre-empted by the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”). The Court did not reach these issues since it ruled that AB 273 was inapplicable because of the foreclosure sale date.

Such additional challenges to AB 273 could include:

  1. Whether AB 273 violates the Contracts Clauses of the Nevada and U.S. Constitution in cases where the loan was sold before the effective date of AB 273, but the foreclosure sale occurred afterwards. In such cases, the loan purchaser would likely allege that it expected to be able to recover the full amount owed on the loan when it purchased the loan and that collection right was impaired by AB 273.
  2. Whether AB 273 violates the Contracts Clauses of the Nevada and U.S. Constitution in cases where the loan was made before the effective date of AB 273 because it impairs the lender’s ability to sell the loan and reduces the value of the loan. The lower court in Sandpointe seemed persuaded by this point and held that AB 273 applied only to loans made after June 10, 2011, whereas the lower court in Neilson reached the opposite conclusion.
  3. Whether AB 273 is pre-empted in all cases involving the FDIC because it is a federal entity.
  4. Whether AB 273 applies to the FDIC because it is not a “person” under NRS 0.039 and Nevada’s anti-deficiency statutes only purport to limit the recovery of “persons.”
  5. Whether AB 273 applies to loans that were transferred to special purpose entities or SPEs owned and controlled by the lender prior to the foreclosure sale.
  6. Whether AB 273 applies to loans secured by real property outside of Nevada where the parties have chosen Nevada law as the governing law.
  7. Whether AB 273 applies to loans secured by Nevada real property where the parties have chosen the law of another state as the governing law.

Written by:

Snell & Wilmer
Contact
more
less

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.