Tuesday, February 7, 2017

Nevada’s One Action Rule (NRS 40.430)

Nevada’s One Action Rule (NRS 40.430)

(i) In General

Nevada’s One Action Rule (NRS 40.430). As codified in NRS 40.430, the one-action-rule, dictates the following:

There may be but one action for the recovery of any debt, or for the enforcement of any right secured by a mortgage or other lien upon real estate.... In that action, the judgment must be rendered for the amount found due the plaintiff, and the court, by its decree or judgment, may direct a sale of the encumbered property, or such part thereof as is necessary, and apply the proceeds of the sale as provided in NRS 40.462.[1]

Nevada’s one-action rule requires a creditor seeking recovery on a debt (in the same foreclosure action):

a) to judicially foreclose on all real property encumbered as security for the debt;

b) to sue on the entire debt;

c) to and obtain a deficiency judgment against the debtor. 

The statute contemplates a creditor’s action to exhaust the security before recovering from the debtor personally.[2] As a general matter, should the creditor fail to follow the single action procedure by bringing a separate action directly on the obligation, the one-action rule dictates the creditor’s loss of rights in the real estate collateral securing the debt in question.[3]

(ii) Exceptions: Actions not deemed duplicative

There are, however, a few exceptions to this rule. Specifically, NRS 40.430(6) Nevada proffers these exceptions by enumerating 16 acts (claims or proceedings) that do not constitute a duplicative action under the statute. So, for purposes of the one-action-rule, an “action” does not include any act or proceeding:

a) To appoint a receiver for, or obtain possession of, any real or personal collateral for the debt or as provided in NRS 32.015.

b) To enforce a security interest in, or the assignment of, any rents, issues, profits or other income of any real or personal property.

c) To enforce a mortgage or other lien upon any real or personal collateral located outside of the State which does not, except as required under the laws of that jurisdiction, result in a personal judgment against the debtor.

d) For the recovery of damages arising from the commission of a tort, including a recovery under NRS 40.750, or the recovery of any declaratory or equitable relief.

e) For the exercise of a power of sale pursuant to NRS 107.080.

f) For the exercise of any right or remedy authorized by chapter 104 of NRS or by the Uniform Commercial Code as enacted in any other state, including, without limitation, an action for declaratory relief pursuant to chapter 30 of NRS to ascertain the identity of the person who is entitled to enforce an instrument pursuant to NRS 104.3309.

g) For the exercise of any right to set off, or to enforce a pledge in, a deposit account pursuant to a written agreement or pledge.

h) To draw under a letter of credit.

i) To enforce an agreement with a surety or guarantor if enforcement of the mortgage or other lien has been automatically stayed pursuant to 11 U.S.C. § 362 or pursuant to an order of a federal bankruptcy court under any other provision of the United States Bankruptcy Code for not less than 120 days following the mailing of notice to the surety or guarantor pursuant to subsection 1 of NRS 107.095.

j) To collect any debt, or enforce any right, secured by a mortgage or other lien on real property if the property has been sold to a person other than the creditor to satisfy, in whole or in part, a debt or other right secured by a senior mortgage or other senior lien on the property.

k) Relating to any proceeding in bankruptcy, including the filing of a proof of claim, seeking relief from an automatic stay and any other action to determine the amount or validity of a debt.

l) For filing a claim pursuant to chapter 147 of NRS or to enforce such a claim which has been disallowed.

m) Which does not include the collection of the debt or realization of the collateral securing the debt.

n) Pursuant to NRS 40.507 or 40.508.

o) Pursuant to an agreement entered into pursuant to NRS 361.7311 between an owner of the property and the assignee of a tax lien against the property, or an action which is authorized by NRS 361.733.

p) Which is exempted from the provisions of this section by specific statute.

q) To recover costs of suit, costs and expenses of sale, attorneys' fees and other incidental relief in connection with any action authorized by this subsection.

(iii) The Right of Conversion: Amending the Pleadings or Claims

To the extent that any act, action or claim as may be included in the counterclaim(s) or construed by the Court in a manner suggesting a violation of the one-action-rule, Liberty Village submits that it is entitled to conversion (or the right to amend the counterclaims) so as to conform to the one-action rule. Conversion (or leave to amend) is allowed under NRS 40.435 when the initial action has not yet been concluded. 

The statute[4] provides that the commencement of, or participation in, a judicial proceeding, in violation of NRS 40.430, does not forfeit any of the rights of a secured creditor in any real or personal collateral, or impair the ability of the creditor to realize upon any real or personal collateral, if the judicial proceeding is: (a) stayed or dismissed before entry of a final judgment; or (b) converted into an action which does not violate NRS 40.430. 

If the provisions of NRS 40.430 are timely interposed as an affirmative defense in such a judicial proceeding, upon the motion of any party to the proceeding the court shall: (a) dismiss the proceeding without prejudice; or (b) grant a continuance and order the amendment of the pleadings to convert the proceeding into an action which does not violate NRS 40.430.[5],[6]

[1] NRS 40.462 governs the distribution of the proceeds of a foreclosure sale.

[2] See Keever v. Nicholas Beers Co., 96 Nev. 509, 513 (1980); see also Nevada Wholesale Lumber v. Myers Realty, 92 Nev. 24, 28, (1976)

[3] Nevada Wholesale Lumber, 92 Nev. at 30, 544 P.2d at 1208

[4] NRS 40.435(1)

[5] NRS 40.435(2)

[6] Bonicamp v. Vazquez, 120 Nev. 377 (2004)

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