On March 5, 2015, in US Bank v. Palmilla Development Co., the Nevada Supreme Court found that a receiver sale of real property is a foreclosure sale within the meaning of Section 40.455(1) of the Nevada Revised Statutes, and that the Section's six-month limitation period for deficiency judgments following a receiver sale commences once escrow closes and there is an exchange of money (343 P.3d 603 (Nev. 2015)).

Respondent Palmilla Development Company took out a loan for $20.15 million from the predecessor-in-interest of US Bank. The loan was secured by a deed of trust on a development of townhouses, and personally guaranteed by the president of Palmilla. US Bank became the legal holder of the loan note and all beneficial interest under the deed of trust. Palmilla defaulted and the president failed to fulfill his guarantor obligations.

US Bank instituted the underlying action to appoint a receiver to collect rents from the property and then market and sell the property. The district court approved this request and a receiver was appointed. On February 5, 2010, the receiver entered into a purchase and sale agreement with a third-party purchaser. US Bank filed a motion to approve the sale and the district court granted the motion on March 26, 2010. Escrow closed on June 7, 2010 when the purchaser paid the agreed price and obtained the deed to the property.

On November 24, 2010, US Bank filed an amended complaint to recover the remainder of the debt unsatisfied by the receiver sale. Palmilla filed a motion for summary judgment on the grounds that US Bank was precluded from seeking a deficiency judgment under Section 40.455(1) of the Nevada Revised Statutes because:

The district court granted Palmilla's motion, holding that although US Bank could use Section 40.455(1) to seek a deficiency judgment following a receiver sale, the bank had filed its amended complaint more than six months after the district court approved the purchase and sale agreement and the action was time barred. US Bank appealed.

The Nevada Supreme Court agreed with the district court's holding that a receiver sale of real property is a foreclosure sale within the meaning of Section 40.455(1). The court said that a sale directed by a court appointed receiver clearly falls within the definition of foreclosure sale as provided by Section 40.462(4) of the Nevada Revised Statutes which defines foreclosure sale as "the sale of real property to enforce an obligation secured by a mortgage or lien on a property...". Under Section 40.455(1), US Bank could therefore properly seek a deficiency judgment.

The court then analyzed whether US Bank properly brought its action for a deficiency judgment within the six-month limitations period provided by Section 40.455(1). This section requires that the application for a deficiency judgment be made "within six months after the date of the foreclosure sale." Palmilla argued that the bank's deficiency filing on November 24, 2010 was untimely because the date of the foreclosure sale was either:

The court rejected both dates, holding instead that the date of the foreclosure sale that starts the six-month limit for a receiver sale of real property is when escrow closes and there is an actual exchange of money.

According to precedent, a judicial foreclosure sale is not legally binding or complete until the purchaser has actually paid the amount bid (In re Grant, 303 B.R. 205, 210 (Bankr. D. Nev. 2003)). Therefore, the court reasoned that for receiver sales of real property, even after a purchase and sale agreement has been reached and judicial approval obtained, the mortgagee has no certainty about whether the sale will go through and therefore cannot be sure of the existence of a resulting deficiency. The court found that the assurance of the existence of a recoverable deficiency triggers the limitation period for the mortgagee to seek a deficiency judgment.

Because US Bank filed its amended complaint within six months of June 7, 2010, the date that the escrow closed, and there was an actual exchange of money, it complied with Section 40.455(1). The court reversed the district court's finding and remanded for proceedings consistent with this opinion.

This decision formally categorizes receiver sales of real property as judicial foreclosures within the meaning of Section 40.455(1) of the Nevada Revised Statutes. This assures lenders in Nevada that they can pursue a deficiency judgment following a receiver sale of property that does not completely satisfy the debt. This case also clarifies that the closing of escrow of a receiver sale, when money is actually exchanged, triggers the six month limitation for deficiency judgments.