Some loan modifications do change the terms of the original document. As Suzanne mentioned, the only to know for sure is to seek advice from an attorney.
I will share some information I have been given, although it is not legal advice. Perhaps you can use this as a starting point for your conversation with the attorney.
1. California is a one action state - so if the bank uses a non-judicial foreclosure (which they do in 99.9% of the cases), that is their one action, whether the loan is purchase money or not. Remember, this does not cover an junior liens.
2. In the case of a foreclosure, any junior liens may remain a liability. Remember, you sign a note (promise to pay) and deed of trust (pledge of collateral / lien) when you borrow money. The junior lien will be wiped out by a senior lien's foreclosure process, but not the note. The note becomes an unsecured debt, just like a credit card, and the holder of the loan can sue you for collection.
3. In California, a properly executed short sale, in most circumstances, prevents a deficiency judgment for all lien holders. Your specific situation would have to be reviewed to determine if your property falls under this law.
4. The federal and state exclusions of forgivenes of debt (aka cancellation of debt or COD), which results when you home sells for less than the amount owed (and remember a foreclosure is a form a sale) are set to expire December 31, 2012. If you wait for the bank to foreclose, and they delay past December 31, 2012, you may find yourself subject to a very large tax liability.
Please, feel comfortable giving me a call to discuss the particulars of your situation. Making a good, informed decision when it comes to this matter, is in your best interest. Let me help you review all your options and possible outcomes. Then you can speak with your other professionals about the legal and tax ramification of your well informed decision. Good luck and Dare to Dream.
Shel-lee Davis, QSCÂ®
Certified Distressed Property Expert â€“ CDPEÂ®
Short Sale & Foreclosure Resource â€“ SFRÂ®
Certified HAFA Specialist â€“ CHSÂ®
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
In general, possible extenuating circumstances aside, I advocate a Short Sale over a Foreclosure - especially given the tax exposure if the lender slips into 2013 before foreclosing.
On 7/15/2011 Governor Brown signed Senate Bill 458 into law thereby PROHIBITING A DEFICIENCY after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior distressed.
As a summary, where applicable, a mortgage lender involved in a SHORT SALE (as opposed to a judicial foreclosure) is now PROHIBITED from engaging in any of the following acts:
1) Collecting a deficiency, 2) Having a borrower owe a deficiency, 3) Requesting a deficiency judgment, 4) Having a court render a deficiency judgment, or 5) Requiring the borrower to pay ANY additional compensation, aside from the proceeds of the sale, in exchange for written consent to the short sale.
You can find additional facts via this post:
"CA Senate Bill 458 Now Prohibits 1st/2nd+ Deficiency Judgments*"
The loan mod is a prison sentence for many.
Before you consider foreclosure I suggest you consider a short sale.
It will help you and your community usually.
as for opening you up to a deficiency judgement it depends on many circumstances, finances, and type of loans you may have. Your modification may have language in it that none of us know about.
Take it to a Real Estate Lawyer. We can only give general advice here and definitely not legal advice.
Harold Sharpe - Broker
So Cal Homes Realty
California Department of Real Estate Broker License # 01312992