Nevada Enacts the Uniform Mortgage Modification Act

[co-author: Kyle Catarata¹]

The State of Nevada has enacted the Uniform Mortgage Modification Act (UMMA or the Act) as Assembly Bill 192, which will become effective on October 1, 2025. The UMMA was prepared by the National Conference of Commissioners on Uniform State Laws, which began drafting in 2021 and approved the final version on October 11, 2024, and recommended it for enactment in all states.

Background of the UMMA
The Uniform Mortgage Modification Act (UMMA) provides statutory clarification of the law governing modifications of real estate security instruments. The UMMA refers to “mortgages” but also covers deeds of trust, which are the most common security instruments in Nevada and some other states. Under current state laws, the legal effect of a mortgage modification — particularly on lien priority — is often unclear. In Nevada, prior to the enactment of the UMMA, there was no governing legal authority on this issue. This uncertainty matters because lien priority determines the order in which creditors are paid in a foreclosure, bankruptcy, or upon sale of the property.

For example, a lender may make a loan secured by a deed of trust on real property in a first priority position. Subsequently, a junior deed of trust may be placed on the property, or in a construction project the contractor or subcontractors may file liens against the property. Then the lender and borrower may want to agree on a modification of the deed of trust or the underlying secured obligation. The lender wants to ensure that the modification does not jeopardize its senior position as this affects its ability to recover the loan. This legal ambiguity introduces delays and increases transaction costs, which are frequently passed on to the borrower. The uncertainty as to the effect of the modification may discourage the lender from agreeing to reasonable and beneficial modifications.

Legal Uncertainty & Risks to Lien Priority
Before the adoption of the UMMA, mortgage modifications carried risks that might dissuade lenders from agreeing to otherwise reasonable changes in loan terms. One of the most pressing concerns has been the potential loss of lien priority following a modification. Under existing common law, if a modification was deemed sufficiently substantial, such that it constituted a novation of the obligation, the result could be that the mortgage would no longer secure the original obligation. In that case, the mortgage might secure only the new obligation, thereby placing the lender’s security interest at risk of being subordinated to an intervening lien. See, e.g., In re Fair Finance Co., 834 F.3d 651 (6th Cir. 2016).

Because of this risk, senior lenders have often felt compelled to obtain consent from junior lienholders before executing any significant loan modification. However, this introduced new issues. A junior lienholder could exploit the situation by demanding a payment or other concessions in exchange for consent.

The issue was further complicated by uncertainty surrounding recording requirements. In some states, it was unclear whether a modification had to be recorded to preserve the priority of the senior lien. If the modification was not recorded and a subsequent lien was properly recorded, the senior lender might lose priority, at least to the extent of the modification. The process of obtaining signatures and acknowledgments from junior lienholders for recording added another barrier to completing the modification process. Out-of-state lenders also encountered additional difficulties. Given the lack of uniformity across many jurisdictions, lenders operating in multiple states could not rely on a consistent legal standard.

Pre-UMMA Standards for Mortgage Modifications
In the absence of a uniform framework regarding mortgage modifications, courts relied on a common law standard to assess the effect of a mortgage modification on lien priority. Specifically, courts looked to whether the modification would have a material adverse effect on actual or hypothetical junior lienholders. This standard, however, was vague and sometimes it was inconsistently applied in different jurisdictions.

For example, in Fraction v. Jacklily, LLC (In re Fraction), 622 B.R. 643 (Bankr. E.D. Pa. 2020), the court upheld the priority of a senior mortgage despite a series of modifications — including an extension of the maturity date, a reduction in interest rate, and the capitalization of unpaid interest and escrow obligations. The court concluded that these changes did not materially prejudice the junior lienholder and therefore did not affect the priority of the senior mortgage. By contrast, in Citizens & Southern National Bank of South Carolina v. Smith, 277 S.C. 162 (1982), the court reached the opposite conclusion. The extension of the maturity date of the obligation secured by the senior mortgage was found to materially prejudice a junior lienholder, and the court held that the senior mortgage lost priority to the extent of the modification.

These conflicting outcomes underscore the uncertainty that lenders have faced prior to the UMMA. With no consistent legal rule, lenders and borrowers have been left to navigate an uncertain and unpredictable legal landscape — one which discouraged loan modifications even when such changes could have benefited both the borrower and the junior lienholder by preserving their lien interests and priority, and avoiding enforcement of the senior mortgage which could have effect of eliminating the junior lien. In Nevada, a state lacking judicial precedent on this issue, it has been generally assumed that the general common law standard would apply; however, there has been no certainty whether this standard would be followed or how it would be interpreted. Thus, having a uniform legal standard like the UMMA will be highly beneficial.

Safe Harbors in the UMMA
Under the UMMA, there are specific safe harbors for common mortgage modifications. The safe harbors are:

For example, changes in the interest rate from a variable to fixed rate or from a fixed to a variable rate based on a recognized index, and changes to a different recognized index if the original index is no longer available, qualify for a safe harbor if the rate remains the same as calculated on the date the modification becomes effective.

If a modification qualifies for a safe harbor, the mortgage continues to secure the obligation as modified; the modification does not affect the priority of the mortgage; the mortgage retains its priority regardless of whether a modification agreement is recorded; and the modification is not considered a novation.

Some other common mortgage modifications are not covered by the safe harbor provisions in the Act. For example, the safe harbor provisions do not protect increases of the loan commitment amount, although they do include modifications of existing conditions to advances of funds. A mortgage modification that is not within the safe harbor provisions is governed by existing law other than the UMMA, such as the common law standard of material adverse effect on junior lienholders.

Practical Effects of the Safe Harbor Provision
The effect of the safe harbor provision is to eliminate or lower the transaction costs of common mortgage modifications by introducing greater certainty and predictability. This could save significant time and money. Such transactions costs may include legal fees, title insurance endorsements, the cost of negotiating subordination agreements with junior lienholders, and the risk of costly litigation. As a result, the UMMA will be beneficial for both lenders and borrowers, small and large, commercial and residential.

Conclusion
The enactment of the UMMA is a significant step toward establishing a consistent legal framework for mortgage modifications. Before its adoption, both lenders and borrowers faced considerable uncertainty regarding lien priority — when modifying existing mortgages and the underlying secured obligations. This uncertainty has tended to discourage beneficial modifications that could have helped borrowers and junior lienholders avoid foreclosure and allowed lenders to preserve their interests and priority. The Act’s safe harbor provisions offer critical protections that preserve lien priority for some common modifications and eliminate the need to record such changes to maintain priority. By providing clarity and predictability the UMMA promotes more efficient and cooperative lending practices, which should benefit all parties involved whether borrowers, lenders, or junior lienholders.

Footnotes

1. Kyle Catarata (Yale Law School 2027) was a summer associate at Snell & Wilmer. He is not admitted to practice law.