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Follow up on Allodial Title in Nevada And Mortgages
Can a Mortgage be Obtained After Allodial Title is Established Without Affecting the Benefits of its Protection?
Allodial title can be a useful tool in shielding assets from a creditor, as the normal limit of $125,000 becomes limitless for those who obtain this type of title to their residence, and file for homestead protection. One requirement for obtaining allodial title is that the home “and the land on which it is located are owned free and clear of all encumbrances.” NRS 361.900(5). This raises a question. Can a mortgage be obtained after allodial title is established without affecting the benefits of its protection? A review of NRS chapters 361 (“Allodial Title”) and 115 (“Homesteads”) indicates that the answer is “yes.”
If a homeowner (or owners) meets the requirements of NRS chapter 361, “the state treasurer shall issue a certificate of allodial title to the homeowner for the home, its appurtenances and the land on which it is located.” NRS 361.900(8) (emphasis added). Once established, the allodial title “is valid for as long as the homeowner continues to own the residence,” NRS 361.910(1), with one exception: the homeowner voluntarily relinquishes the allodial title. Id.; NRS 361.915. (Relinquishment is automatic if the property is sold, leased, or transferred, or if it is “converted to anything other than a single-family dwelling occupied by the owner.” NRS 361.915(1)(c).)
Thus, NRS chapter 361 makes it very clear that once the requirements of allodial title are met, the title remains valid for as long as the owner retains ownership and occupancy and the building remains a single-family dwelling, unless the owner voluntarily relinquishes title. It is important to notice that the taking of a mortgage after the establishment of allodial title does not result in the automatic relinquishment of the title. That only occurs upon a change of owner, occupant, or the nature of the property. Therefore, nothing in NRS chapter 361 prohibits the taking of a mortgage after allodial title has been established.
It is Important to Notice that the Taking of a Mortgage after the Establishment of Allodial Title does not Result in the Automatic Relinquishment of the Title!
NRS chapter 115 supports this conclusion. A homestead “is not subject to forced sale on execution or any final process from any court,” NRS 115.010(1), with certain exceptions. The main exception is that the homestead protection is limited to $125,000 of equity in the property. NRS 115.010(2). Further, the homestead protection “does not extend to process to enforce the payment of obligations contracted for the purchase of the property, or for improvements made thereon, . . . or for legal taxes, or for any mortgage or deed of trust thereon executed and given.” NRS 115.010(3).
When allodial title is established, however, the rules change. First, the $125,000 limit disappears, and the exemption “extends to all equity in the dwelling, its appurtenances and the land on which it is located.” NRS 115.010(2). Further:
If allodial title has been established and not relinquished, the exemption provided in subsection 1 extends to process to enforce the payment of obligations contracted for the purchase of the property, and for improvements made thereon, including any mechanic’s lien lawfully obtained, and for legal taxes levied by a state or local government, and for any mortgage or deed of trust thereon.
As this section indicates, one who obtains allodial title is exempt from court process by any creditor wishing to enforce a mortgage obligation. But, as already stated, allodial title cannot be obtained unless the property is free and clear of all encumbrances. Thus, the protection from a holder of a mortgage would be a nullity unless one who has allodial title can take out a mortgage after meeting the requirements of NRS chapter 361. Stated another way, if a mortgage cannot be taken out after allodial title is obtained, then a mortgage could not exist prior to obtaining allodial title, or after it is obtained. If this was the case, why does NRS 115.010(4) provide a homestead protection against a holder of a mortgage for those who possess allodial title? If a mortgage could not be obtained on allodial title property, the reference to mortgages in NRS 115.010(4) would be meaningless. As a matter of statutory construction, no interpretation of a statute is legitimate wherein a law is rendered a nullity. Therefore, NRS chapter 115, similar to chapter 361, allows for a mortgage to be taken on a piece of property after allodial title is established.
The fact that no law prohibits a mortgage on a piece of allodial title property does not mean that a bank will be eager to loan the money. This is so, since NRS 115.010(4) provides the allodial property owner with absolute protection from legal enforcement of the mortgage, if homestead protection has been filed. Thus, if a bank extended a mortgage to the owner of a piece of property on which allodial title is held, and the owner defaulted, the bank could not execute against the property in question in any way, no matter the size of the loan. Its only recourse would be to attach other assets owned by the debtor. This, of course, may not be enough to cover the amount of the mortgage. This being the case, a bank would not be anxious to extend a mortgage to the owner of an allodial titled property, unless other guarantees were made to ensure repayment.
In conclusion, the plain meaning of NRS chapters 361 and 115 indicates that the owner of an allodial titled property can obtain a mortgage on the property after allodial title has been established. However, given the legal protection provided to allodial titleholders who also file for homestead protection, such a mortgage may be difficult to obtain. (Of course, if one has allodial title but has not filed for homestead protection, a bank may be more willing to make a loan.)