Real Estate Law

Duane Morris: Nevada Ruling Suggests Lenders Wait Until Foreclosure Before Pursuing Guarantor Claim

In a recent case, the Supreme Court of Nevada agreed that a lender needed to wait until the completion of a foreclosure sale before making a deficiency claim against a guarantor. In Ken L. Templeton Family Trust, et al. v. Eighth Judicial District Court of the State of Nevada, et al., 2013 Nev. Unpub. LEXIS 158 (Nev.), the court granted the issuance of a writ of mandamus, instructing the district court to vacate its order granting in part AG/ICC Willows Loan's motion for summary judgment and directing the district court to enter an order denying AG/ICC Willows Loan's motion for summary judgment.

In this case, borrower Carefree Willows, LLC went into default, and then filed for bankruptcy on the eve of foreclosure. While the bankruptcy was pending and before the foreclosure sale, lender Union Bank of California, N.A. ("Union Bank") filed a guaranty complaint for the full debt amount. District Judge Rob Bare granted summary judgment in favor of Union Bank as to liability and requested further briefing on the issue of damages. Guarantors Kenneth Templeton, the Templeton Family Trust and the Ken II Revocable Family Trust filed a writ of mandamus-essentially asking the court to vacate the summary judgment order-and reasoned that they were afforded anti-deficiency protections due to the filing of the complaint for the appointment of a receiver and enforcement of assignment and rents. Therefore, they contended that Union Bank was obligated to wait until the completion of the foreclosure sale before seeking its deficiency.

Although it appears to require a slight stretch in the interpretation of the Nevada statutes, the court agreed with the guarantors-adding that "the completion of the trustee's sale avoids any potential for double recovery [citing Walters v. District Court, 263 P.3d 231 (2011)] (recognizing the 'potential [for] double recovery when a guarantor waives the one-action rule pursuant to NRS 40.495(2)')."

While the lender may seek reconsideration of this ruling, a key takeaway is that in Nevada lenders may need to wait until after a foreclosure sale occurs before pursuing a deficiency claim against a guarantor.

For Further Information

If you have any questions about this Alert, please contact Meagen E. Leary, any member of the Business Reorganization and Financial Restructuring Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, or should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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