Nevada. It’s not California.
I recently had the opportunity of driving from Salt Lake City to the San Francisco Bay Area. Our trip took us on Interstate 80. At Elko, one of the locals told us some people feel Nevada should be cleaned off the map, but this person told us that such people feel that way only because they never get off Interstate 80. We took this person’s advice, and at Battle Mountain we took Highway 305 south to Highway 50. Except for the view of Lake Tahoe from Highway 50, this detour showed us the most beautiful views of Nevada I’ve ever seen. We’ve never viewed so much green in Nevada, and the mountain vistas were breathtaking.
But landscape and rainfall aren’t the only things that distinguish Nevada from California. The laws concerning lending and foreclosure are also different. I know of a lender who used to make loans in California. This lender moved their operations to Nevada, with no further business being done in California. This was because this lender felt that the Nevada lending laws were much simpler than the California lending laws. Simpler laws can sometimes allow greater flexibility in business transactions, and this lender found California lending law too restrictive and too regulated.
Those same regulations that make lending more difficult in California can actually provide a benefit to borrowers. California has lending laws that protect borrowers that some other states don’t have. Several months ago I had occasion to call an attorney in Nevada about Nevada’s foreclosure laws. This attorney advised me that in Nevada, lenders can foreclose non-judicially on most loans and then as a routine matter file suit against the borrowers for any deficiency. That type of situation most frequently happens in California only when a property is encumbered by two loans and where foreclosure by a first results in the second lender becoming a “sold-out junior.” As a result, some California borrowers experience foreclosure without resulting personal liability, whereas the results would apparently be different in Nevada.
Few people go into a real estate transaction expecting that they will default on their loan payments. If people had such expectations, most of them probably wouldn’t make their real estate purchase. Because they don’t expect to default, and because California lending and foreclosure laws are complex, most homebuyers don’t spend the necessary time and money to fully understand the consequences of a default before they purchase a property. But in the present market, many of these homebuyers find they are taking a crash course in finance and lending law. What some of them find out after the fact is that the information they get can significantly vary from state to state.