The following are “One Minute Legal Analyses” by Teresa McKee, General Counsel, Nevada Association of REALTORS

UPDATED —AB273- Deficiency Judgments Junior Lienholders and Guarantors

UPDATED —SB414- Deficiency Judgments and Short Sale Response

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Steven Kitnick, CFAC, CSP, CNE, GRI, RRG
Managing Director, Steven Kitnick Seminars, LLC
Continuing Education Instructor & Author
Nevada Real Estate Broker/Salesman & California Real Estate Broker

1) A distressed homeowner should speak to an attorney before you list their property so the homeowner may review their options, and so you’re not liable for what they choose to do.  2)  When you take on a client who is in financial distress you may have a higher standard of care to protect their best interests.  3)  An attorney allows clients full protection and representation. 4)   An attorney may gain more leverage over lienholders
during the negotiation process.  5) If your clients have assets &/or future or current income, an attorney can offer guidance about exposure to collection attorneys &/or tax authorities.   6)  An agent-friendly attorney will aggressively negotiate for your full commission. 7)  If you’re negotiating your own short sales you’ll likely limit
the number of transactions you can close per month.  By using an attorney you leverage your workload, there’s no limit to the number of deals you can close per month.  Call Robert Noggle, Esq. – An Agent Friendly Attorney Today at (702) 450-6300.  Steve can be reached at StevenKitnick@StevenKitnickSeminars.com or by calling (702) 326-8722. 

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On September 16th, 2010, Wells Fargo sent out the following memo: “Due to recent industry changes, we at Wells Fargo will no longer be granting any extensions for short sale close dates or postponing foreclosure/trustee sale dates. If you were issued an extension letter dated 9/14 or earlier, those extensions will be honored, but no further extensions will be granted. Files must close by the expiration date on the original approval letter or they will be removed.” This new policy change is another reason why your eligible homeowners need to Elect to Mediate, and use the Nevada Foreclosure Mediation Program to get short sales approved! By electing to mediate, they can postpone foreclose! They can not be foreclosed until the trustee receives a certificate from the mediator stating that the borrower has had their day in mediation. For more info about the Nevada Foreclosure Mediation Program contact Attorney Robert B. Noggle at (702) 450-6300.    

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1. Seven Reasons Why A Real Estate Should Use An Agent-Friendly Attorney With Your Short Sales Steven Kitnick, CFAC, CSP, CNE, GRI, RRG Managing Director, Steven...

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Nevada Revised Statutes Chapter 21 sets forth the state law governing ENFORCEMENT OF JUDGMENTS – assets that can be executed upon and those assets that are exempt from execution.  You need a knowledgeable attorney on your team of “trusted advisors” who “really” understands debtor-creditor law (“Asset Protection”) in the State of Nevada.  Beware of charlatans! For general information see:  Nevada Revised Statutes Chapter 21.  Contact Attorney Robert B. Noggle for a referral!  Call (702) 450-6300 today!

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One of the most FAQ’s I receive is “How soon will I be able to get a home loan if I file for bankruptcy, let my house go to foreclosure, execute a deed-in-lieu of foreclosure, or agree to a short sale? The following may assist you in understanding general guidelines used by many underwriting departments:

Conventional Loans

Bankruptcy
Chapter 7 (“A type of bankruptcy in which a person’s assets are liquidated – collected and sold- and the proceeds are distributed to the creditors”).  4 years from either the discharge or dismissal date. Chapter 13 (“A type of bankruptcy in which a person keeps his assets and pays creditors according to an approved plan”).  2 years from discharge date or 4 years from dismissal date. If multiple bankruptcies within a 7-year period, it is 5 years from the most recent dismissal date.

Foreclosure is 5 years from completion date. Deed-in-Lieu of Foreclosure is 4 years. Pre-Foreclosure is 2 years from date house closed. If house was a short sale and borrower was not in pre-foreclosure (no 60, 90, 120, or 150 day “lates” in last 12 months), lender can sell the loan to Fannie Mae. The lender/servicer that completed the short sale must NOT have entered into any agreements that obligate the borrower to repay any amounts resulting from the short sale, including a deficiency judgment.

FHA/VA

Bankruptcy Chapter 7 – 2 years. Chapter 13 – 12 months after release. Foreclosure or Deed-in-Lieu of is 4 years from completion date. Pre-Foreclosure is 2 years. Same exception as conventional (above) if not delinquent.
*Exception - If borrower is in a Chapter 13 BK for at least 12 months, has no    “lates” to the trustee and the lender can get a letter from the trustee that it is    okay for them to buy a house, the lender can waive the required time from BK.

Source:  Dan Means, Branch Manager, imortgage – Las Vegas, NV

This information is deemed to be reliable.  Article dated August 11th, 2010.

Steven Kitnick, CFAC, CNE, CSP, GRI, RRG
is a Nevada Real Estate Broker-Salesman,  California Real Estate Broker, & Managing Director of Steven Kitnick Seminars, LLC – a real estate continuing education provider.

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On December 15th, 2009, In the Court of Appeals ~ State of Arizona ~ Division one ~ Amtrust Bank v. Fossett ~
The Court held “that while issuance of a Form 1099-C may be prima facie evidence of cancellation of a debt, the lender may rebut that evidence by showing that when it issued the form it did not intend to forgive the obligation.”  The Court went on to say that, “generally accepted accounting principles require that when a [retail] loan is past due for a specific period of time, the lender must reclassify the debt as a loss and write it off.”  See Kelly v. Wolpoff & Abramson, L.L.P.  “In that circumstance a lender may or may not decide to cease trying to collect on the debt.”  See, In re Zilka, 407 B.R. 684, 689 (Bankr. W.D. Pa, 2009).  Amtrust Bank successfully argued that it issued the form not because they intended to cancel the debt but because it was required to after the debtor made no payments on the loan during a “testing period” pursuant to federal regulations.  Read the entire Opinion.

Steven Kitnick, CFAC, CNE, CSP, GRI, RRG
is a Nevada Real Estate Broker-Salesman,  California Real Estate Broker, & Managing Director of Steven Kitnick Seminars, LLC – a real estate continuing education provider.

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Important Amendments to the Nevada Foreclosure Mediation Rules Become Effective June 1st, 2010 – Re:  Time for Mediation Scheduling, Broker’s Price Opinion (“BPO”) in lieu of Appraisal, & Trial Period for Loan Modifications

The Nevada Supreme  Court has made significant changes to the mediation rules concerning mediation time frames, lender document requirements, and loan modifications.

The amended rules require that a mediation must now take place within 135 days of the mediation program Administrator’s receipt of the trustee’s one-half of the mediation fee which is $200.  The former rule required that mediation take place within 90 days of the filing of the notice of default.

Because the borrower must elect mediation within 30 days of the service of the notice of default the practical effect of this change could mean that a mediation will be scheduled more than 165 days from the notice of default date. Of course whatever time period  the trustee takes to process and send a check to the Administrator only extends the scheduling of the mediation date.

The court has also amended the former rule requiring that the lender provide an appraisal made within 60 days of the mediation date.  The amended rule states that “The mediator may, in his or her discretion, accept a broker’s price opinion letter (BPO) in addition to or in lieu of the appraisal described in this rule.”

Providing a BPO rather than an appraisal will save a lender a significant expense.  In short sales the BPO is a standard requirement by a lender and obtained at their expense.
Although discretionary with the mediator it appears likely that a BPO will be accepted in lieu of an appraisal except in extraordinary circumstances.

A borrower seeking a loan modification is generally offered a 90-day trial period at the expiration of which the lender offers a permanent modification.  For a variety of reasons the transition from trial to permanent can result in the borrower being denied a permanent modification. The mediation rules did not allow for a mediation to be continued pending the successful completion of the trial modification.  This meant that a borrower denied a permanent modification after the trial had no recourse under the mediation program.

A new rules provides that when there is a trial modification a borrower may file a petition for judicial review in the event a permanent loan modification is denied by the lender. The petition must be filed within 15 days of the expiration date of the trial modification.

The Nevada Foreclosure Mediation program has been evolving since July 1, 2009, the date the law creating the program went into effect.  These new amendments will most likely not be the last.  However, they do show that the Supreme Court continues to monitor the effectiveness of the program to determine what steps can be taken to furthur enhance it.

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The State of Nevada Foreclosure Mediation Program (FMP) was set forth in Assembly Bill 149, and passed into law during the 2009 session of the Nevada Legislature.  Although “its purpose is to address the foreclosure crisis head-on and to help keep Nevada families in their homes, “ a short sale is a possible outcome at the Hearing. AB 149 established the Foreclosure Mediation Program for owner-occupied residential properties that are subject to foreclosure notices, formally known as a Notice of Default and Election to Sell (“NOD”) that was  filed on or after July 1, 2009.   The cost of the mediation is $400, “to be shared equally by the homeowner and lender.  Each party must pay their $200 fee prior to the mediation.  When submitting the forms requesting mediation, the homeowners must include their payments of $200 in cashier check, money order, or, when available, by electronic transfer.”   The Election/Waiver of Mediation is very time sensitive.  The phrase “time is of the essence” has never been more true. The Election/Waiver of Form states, “You must mail the envelope to the Adminstrator no later than 30 days after the date the Trustee mailed you the form and the Notice of Default.” Look to the postmark on the certified letter! Remember! It’s not 30 days from the homeowner’s receipt of the notice, nor is it 30 days after the Notice of Default was filed. It’s 30 days from the mailing! [Source: FMP Form #2 rev. 10.27.09 Page 2 of 2].  Attorney Robert Noggle has successfully represented clients at the Mediation Hearings.  Robert can be reached at (702) 450-6300.  Click this link for answers to Frequently Asked Questions (FAQ) on the Nevada Foreclosure Mediation Program.

Steven Kitnick, CFAC, CNE, CSP, GRI, RRG
is a Nevada Real Estate Broker-Salesman,  California Real Estate Broker, & Managing Director of Steven Kitnick Seminars, LLC – a real estate continuing education provider.

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Attorney Robert Noggle has researched this question and found that the Indiana Court of Appeals in Leonard v. Old National Bank Corp. Nov 21, 2005, held that “bank’s filing of Form 1099-C in response to borrower’s bankruptcy proceeding did not operate     to cancel debt.” The Court went on to say that the filing of Form 1099-C was “an informational return and was filed after an identifiable event, and bank did not intend to cancel debt by filing Form 1099-C, but rather was simply trying to follow IRS instructions, 26 U.S.C.A. § 6050P.” In the Discussion and Decision of the case, the Court stated that “Federal law requires every financial institution to send a copy of Form 1099-C to a debtor and to the IRS when discharging, in whole or in part, the indebtedness of any person, 26 U.S.C.A. § 6050P. The instructions published by the I.R.S. for filing Form 1099-C state the form must be filed after an “identifiable event,” which “includes, but is not limited to,” a discharge of debt in bankruptcy, an agreement between the creditor and debtor, and a cancellation or extinguishment of the debt by operation of law that makes the debt unenforceable. Form 1099-C instructs the debtor that the debtor must report the cancellation of the debt on its income tax returns. In conclusion, “the 1099-C does not cancel the debt in and of itself. Instead, it is a “clerical type filing to meet the requirements of the I.R.S. – It’s an informational thing after the fact of an identifiable event.”

Another case Attorney Robert Noggle found was in the U.S. Bankruptcy Court W.D. Pennsylvania. In re Stephen M. Zilka, Debtor, Eric Bononi, Trustee of the Bankruptcy Estate of Stephen Zilka, Movant v. Bayer Employees Fed. Credit Union, Respondent. No. 05-25205-MBM. July 16th, 2009. In a nutshell, “the Bankruptcy Court held that: (1) lender’s issuance of account statements to debtor-borrower, indicating that outstanding loan balance were $0.00 due to its its “charge off” of loans,      was mere accounting procedure, that was not legal equivalent of its forgiveness of loans; (2) issuance of IRS forms was not in nature of “admission” that loans had been forgiven; (3) issuance of IRS forms did not itself operate to legally discharge debtor from further liability on loans.

Here’s an except from an article written by Attorney Brian G. Methner, Esq. December 2008. Methner and Associates, P.C.  ” “The lender must issue a 1099-C if over $600 of the forgiven debt is discharged by the lender (26 U.S.C. § 6050P and IRS 2008 Instructions Form 1099 A-C) or a triggering event, as determined by the IRS, has occurred (26 C.F.R. § 1.6050P-2).  Discharge of the debt precludes further collection activity, but a triggering event does not.  A 1099-C may be required to be issued by your lender regardless of whether they plan on collecting in the future or not (Debt Buyers Association V. John W. Snow).  Also,  if your lender sends a 1099-C or specifies in the short sale documents that there will be a charge-off this does not mean they have discharged the debt.  A charge-off may still be collected for applicable state and federal time periods. You, as an individual, must generally report income from forgiven debt (26 U.S.C. § 61(a)(12)). The 1099-C is sent to you and the IRS (Form 1099-C). The amount shown on the 1099-C in Box 2 is the amount you generally must include as gross income on your taxes (IRS Publication 908). You may request the Company not report the debt forgiveness as income on a 1099-C provided it is not taxable for such reasons as the debt is contested, the settlement is a non-taxable purchase price reduction, or you are insolvent. Your short sale contract should include a provision stating debt forgiveness should not be reported as income if it is not taxable and a follow-up letter should be sent stating the reasons the debt forgiveness is not income and that the letter itself serves to show that failure of the company to file the 1099-C ‘is due to reasonable cause and not to willful neglect’ (26 U.S.C. Section 6651).”

Steven Kitnick, CFAC, CNE, CSP, GRI, RRG
is a Nevada Real Estate Broker-Salesman,  California Real Estate Broker, & Managing Director of Steven Kitnick Seminars, LLC – a real estate continuing education provider.

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IN THE STATE OF NEVADA,  short sale negotiating falls under the category of “loan modification or foreclosure consultant” as defined in Assembly Bill 152 which modified NRS Chapter 645F.  You can read AB152 here

There are FOUR options for negotiating short sales in Nevada:

1)  Attorneys

Most attorneys may handle short sale negotiations because they are exempt under NRS645.380(1).   “An attorney at law rendering services in the performance of his or her duties as an attorney at law, unless the attorney at law is rendering those services in the course and scope of his or her employment by or other affiliation with a mortgage broker or mortgage agent.”

2)  Properly licensed individuals & companies per the Mortgage Lending Division

3rd party negotiators must be licensed under the guidelines set forth by the Nevada Mortgage Lending Division. Click Here for Licensing Requirements. Here’s a list of licensees and applicants who are eligible for conducting Pre-Foreclosure and Loan Modication activities, according to the Nevada Mortgage Lending Division – Check Here for the List

3)  A licensed real estate agent as a part of a real estate transaction

According to Bruce Alit, Chief Compliance Officer at the Nevada Real Estate Division, a licensee can negotiate short sales with lienholders providing the licensee is part of the real estate transaction, as evidenced by being named on the “Duties Owed by a Nevada Real Estate Licensee” form. NOTE:  There may be no separate or distinct payment or compensation for performance of activities defined as loan modification, foreclosure consulting or providing of covered services outside of a real estate transaction.   Activities that by definition might include aspects of “Loan Modification Consultant,” “Foreclosure Consultant,” or “Provider of Covered Services” must be part of a real estate transaction.  As such, a commission paid to a licensee through a real estate brokerage as a result of those activities defined in NRS 645.030 and/or NRS 645.040 shall serve as evidence that the activities engaged in by the real estate licensee were “acting under the authority of their license.”

Read the Nevada’s Real Estate Division’s position statement on this topic: Download NVRED_MortgageLending_Position Statement_101509

IMPORTANT!  According to Mr. Alit, real estate licensees will be held accountable if they hired or recommended for hire, any one who is not legally permitted to conduct short sale negotiation activities.

4)  A principal (Seller or Buyer)

The seller may negotiate with his/her own lienholder.  The buyer, with written authorization from the seller, may negotiate with the seller’s lienholder since the buyer is a principal and party to the real estate transaction.

IN CLOSING, here’s some questions to ponder -

• Is the company you’re using licensed to negotiate pre-foreclosure sales (short sale) ?
• Is a real estate licensee who is not a party to the transaction handling the negotiations?
• Is a real estate licensee’s unlicensed or virtual assistant doing it?
• Is the title company doing it?

KNOW THE LAW and work within it!

Steven Kitnick, CFAC, CNE, CSP, GRI, RRG
is a Nevada Real Estate Broker-Salesman,  California Real Estate Broker, & Managing Director of Steven Kitnick Seminars, LLC – a real estate continuing education provider.

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