Recent Purchase Money Loan Collection Changes
Many homes purchased during the recent real estate boom were financed with 100% purchase money, wherein the borrower obtained a 1st loan secured by a Deed of Trust and a 2nd loan secured by a Deed of Trust to finance 100% of the purchase price of the home. (Purchase Money loans). Many states including California, Arizona, Idaho, Washington and Georgia have laws or variations of laws prohibiting a lender from suing on the Note of a foreclosed out Junior lien holder when the loan was a “purchase money” loan. When the facts present “fraud” by the borrower (as in I promise to live in the property, but really I am an investor and have never lived in the property) many states do allow an exception and the lender can sue on the purchase money Note under a theory of fraud. Each state has varying laws on this factual situation.
However, recent Nevada legislation (NRS 40.455) also adds Nevada to the list of states that you cannot sue on a purchase money note going forward. Until this year, we have successfully sued on purchase money loans in Nevada. However, all of that is changing. Nevada’s recent legislation (NRS 40.455) calls for a Foreclosure Mediation process for Notices of Default recorded after July 1, 2010. Additionally there was legislation last year regarding single family owner-occupied homes and how to establish deficiencies and foreclosures with an effective date of October 1, 2009. But there appears to be a void in the law as a total bar of purchase money litigation on foreclosures which occurred prior to October 1, 2009.
Therefore, we are recommending to our clients who hold sold-out junior Notes in Nevada that were purchase money and the foreclosure occurred prior to October 1, 2009, that the time to file litigation on the Purchase money note is now. Foreclosures occurring after October 1, 2009 will automatically be barred from suing on the note of a purchase money loan in Nevada.
If you have any questions regarding these changes please feel free to contact Ted Prenovost, Prenovost, Normandin, Bergh & Dawe, 714-547-2444, 2122 N. Broadway, Su. 200, Santa Ana, California, 92706.
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