If the underlying loan was a VA, FHA or other government insured loan, the 9th Circuit Court of Appeal, which covers all of California, has said that the government has an independent right to pursue a loss that they pay under the insurance program. See Carter v. J Derwinski (1993), 987 F. 2d 611. The Court made it clear that all State anti-deficiency laws are not relevant and the federal governmentâ€™s right to pursue indemnity under the insurance contract is independent from the foreclosure and they have a right to purse the borrower.
What is interesting to me is that borrowers have to pay for the mortgage insurance, and then when they default and the insurance coverage for which they paid kicks in, they may have to pay again to indemnify for money that was paid.
You make a good point about the mortgage insurance being paid by the borrower and then having to pay the indemnification as well. Of course the way the mortgage insurance is presented is that it is a fee to use the program and cover the investorâ€™s loss making the program viable. Still the case can be madeâ€¦
My real estate law professorâ€™s answer was (paraphrased, since it was a long time ago) â€œThere is a legal conflict that would probably need to be addressed by an appellate court â€“ and possibly the US Supreme Court.â€ The legal question is can the federal government create a loan program that is uniformly administered throughout the country, or do they have to conform to 50 different state standards? Since it has never been elevated to an appellate level to my knowledge, I guess the answer remains â€œmaybe.â€
But let me guess at something here. If you are in a position concerned that your home will be foreclosed, I would speak to a realtor directly that is specialized in short sales. A short sale will always be a better alternative, if it can be approved, than a foreclosure. A foreclosure hurts YOU the worst of all alternatives. It also has the worst effect on your neighborhood and all of us as taxpayers. When working with a realtor, many have access to attorneys and tax advisors who can give you the guidance on those two issues, which are outside our expertise.
In most cases, though, the rule that is most specific, ends up being that which is enforced. California put into law some protections above and beyond federal laws for those homeowners facing foreclosure or resolving through a short sale. This includes SB 458 which Elizabeth refers to.
You can pose your question to an attorney for free at http://WWW.lawguru.com.
CA law has several anti deficiency provisions . You should check with an attorney whether your loan falls into the category.
Is it a purchase money first loan? Or a Refi? Are you thinking of foreclosure or short sale? These are some info needed by the attorney.
Hope that helps.
As others have stated, a real estate agent is not the one to be asking legal questions to, it is beyond our scope, you need to speak with an attorney who can evaluate your specific situation and question.