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Deficiency amount computation

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by Reno1, Mar 18, 2009.

  1. Reno1

    Reno1 LoanSafe Member

    Can someone please advise how does the lender compute if you owe them the loan deficiency.

    For example:

    1st Loan = $400,000
    2nd Loan = $100,000
    Both loan are used to purchase the property
    Location in Reno, Nevada

    Current market value = $300,000
    If sold in Trustee Sale Auction = say $275,000
    I'm sure the will additional fees and such as their cost.

    1) Will the computation for the difference owe be based on the current market value ($300K) or the original amount ($400K and $100K respectively)

    2) I would assume the first will take the $275K and leave the 2nd with nothing. If the 1st pursue for the difference, how will do it?

    3) How does the 2nd compute their losses? From the current market value? From the amound sold?

    My view is they've also made the investment along with the borrower during the initial purchase of the property. They should in turn, take the lost and consider the market value or the purchase value.

    Any experts out there, please comment.

  2. ProfessorShays

    ProfessorShays LoanSafe Member

    Reno1 said, "Any experts out there, please comment."

    My favorite definition of an "expert is as follows: An "ex" is a "has been." A "pert" is a drip under pressure.

    At the risk of sounding like "a has been drip under pressure," let me see if I can provide a meaningful response.

    As to the second loan in your scenario, the answer is easy. Their "deficiency" isn't really a "deficiency" at all. Their loan, as the result of the foreclosure of the first loan becomes an unsecured loan. If you fail to make payments on that loan, then they will sue you for the entire unpaid balance (principal, past due interest, attorney's fees, and court costs).

    As to the first loan in your scenario, they will need to "prove up" their deficiency by providing evidence to the judge hearing the case. That "prove up" will be first proving the total amount owed (again principal, past due interest, attorney's fees, and court costs) and any amounts "recovered" through the disposition of the property. Now it gets a bit tricky here because if they are not careful for example, and bid the total amount owed at the foreclosure sale, then they may have effectively bought the property for what they are owed and their deficiency would be ZERO. But they are typically smarter than that, and seeing no bidders at the foreclosure sale, they will make a credit bid below that which they believe they can ultimately recover in selling the property to a third party. So the number to be applied to establish their loss is the larger dollar figure from the following two amounts:

    1. The credit bid at the time of the foreclosure.
    2. The net amount they recover when they sell the property (Sales price less costs of sale and carrying costs while attempting to market the property).

    My hope is that I might have explained this calculation so that it is easily understood. I doubt that I succeeded but at least I tried.

  3. ORNV3

    ORNV3 LoanSafe Member

    Hi Reno1,

    My property is in Reno too. You should look up some of my treads because I've asked a TON of questions about Nevada on the forum. I'm about 2-3 months behind right now. As far as I can guess it looks like you might be on the hook for the full $100000 for second (plus fees) and possibly $100000+ for the first too. The second can try to collect for 6 years. The first has 6 months to go for a judgement. I think. Good luck!
  4. Reno1

    Reno1 LoanSafe Member

    Thanks Prof.: I was afraid of that. In the event that they (1st & 2nd) sue me for the loan amount, Is this the right time to file for bankrupcy? I was thinking about requesting a settlement of some kind, but if they play hard ball then BK is my only option?

    ORNV3: I've read some of your post, I am actually in my 8 months of no pay; 1st and 2nd. The property is scheduled for Trustee Sale in April 2nd. We are preparing for the worst, but still living in the property.

    What is you plan, as far as the lender going after you? Do you know how long do we have, before eviction, after the sale date?
  5. ProfessorShays

    ProfessorShays LoanSafe Member

    I view a BK filing as a last resort. I'd utilize the potential of filing as a tool to achieve an acceptable settlement. Problem in Nevada is that six year statute of limitations on the "unsecured" second loan. Way too long, but does excuse you from the desire to purchase that winning lotto ticket.

  6. Reno1

    Reno1 LoanSafe Member

    Ha, ha, Prof... perharps I should start buying some lottery tickets. This could be the savior IF I win.

    I've read a lot of your post stating BK filing as a last resort. I do agree somewhat. However, 6 years statue of limitations is too long. If wanting to start out fresh is the objective of getting out this mess, would this mean that we have to always watch our finances for 6 years? As I am sure they will keep an eye on any assets or savings we will acquire after the foreclosure. Anytime they feel that the can get some money out of us, then they will do so?
  7. ProfessorShays

    ProfessorShays LoanSafe Member

    You've hit the nail on the head, specifically relating to that lengthy statute of limitations. And the winning numbers are 3-21-23-31-43; Mega Ball 33. Good luck.

  8. ORNV3

    ORNV3 LoanSafe Member

    Hey Reno1,
    My plan is to file BK. I just can't look over my shoulder for the next 6 years. I'm planning on getting married soon and want this whole thing behind me so we can get on with our lives. I had to move out of state last fall so I don't have to luxury of living rent free, I wish I did!

    I basically got out of school and bought my house and have been totally house poor for the last 3 years. I literally have NOTHING, so BK isn't a big deal for me. The funny thing is I'm getting an unexpected BIG tax refund this year and since I'm planning on filing BK, I need to get rid of it asap. Nevada does not allow you to keep any money when you file BK. So I've got about $12000 I need to get rid of..... I'm going to buy myself a new (used) car!!! I've been driving a hunk of junk since my first year of college because I have always thought that putting money into a vehicle is insane.... turns out the house idea was even worse!

    So... fyi, you can have $15000 in equity in your car per Nevada BK exemptions which is WAY more than most other states! Just in case you have some extra money you need to use before BK, if that's what you end up doing.

    I was totally freaked out about all of this at first but now I'm actually excited about my "fresh start" and new car!

    I'm making about half as much money as I used to, but now that I'm not weighted down by my house I'll have WAY more money to do whatever I want with. :)
  9. ORNV3

    ORNV3 LoanSafe Member

    I have a book on foreclosure and it says that in NV you have to be given 3 days notice to leave before the new owner files an eviction lawsuit....
  10. Reno1

    Reno1 LoanSafe Member

    Thanks for the information ORNV3!

    Are you filing for chapter 7 or chapter 13? You mentioned in one of your threads that you talked to an attorney already. Do you any recommendation from Reno area?

    You mentioned that Nevada will not allow you to have cash, how does that work? If you have income coming in, how much would allow for expenses and such. I have two young ones still in elementary school. There are thousands of us going into this mess, am I seing a trend to where everyone of us will be bankrupt?
  11. ORNV3

    ORNV3 LoanSafe Member

    I'm filing chapter 7. I'm using an attorney in OR and filing here (I live here now). But I still need to use NV exemptions because I haven't been living here long.

    As far as I can tell you can't have any money in your bank account at the time of filing. You can pay your bills for the month before you file, then if there's anything left the trustee will take it. I'm not really sure how it all works after you file. Once your discharged you can do whatever you want. I'm not an expert... not yet!

    You should just look up NV bankruptcy exemptions and you can see what is/isn't exempt.

    I think that many many many responsible people will be bankrupt soon. Take me for example. I have no car debt, no cc debt, no school debt..... just had to move and could not sell the house and can't afford to live here and pay for it there. So... I don't really have any other options. I think the stigma attached to BK will go away soon.

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