Foreclosure in 92532>Question Details

Cory, Home Owner in 92532

I have a purchase-money loan which was modified under HAMP. If I default again and foreclose, does my modification open me up to a deficiency judge?

Asked by Cory, 92532 Fri Jan 20, 2012

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Shel-lee Davis - BRE #01817412’s answer
Cory:

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, QSC®
Certified Distressed Property Expert – CDPE®
Short Sale & Foreclosure Resource – SFR®
Certified HAFA Specialist – CHS®
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Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
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1 vote Thank Flag Link Fri Jan 20, 2012
Thanks Suzanne for the reply. I live in California which is a one action state. From what I've read they can not seek a deficiency for a purchase money loan. However, the mod throws a twist in that. From the documents I've read with the mod it still the same loan but with a few additional provision regarding the unpaid balance being attached at the end of the loan, a balloon and the interest aspects of it to make the loan fall under the 31%. So the way I'm interpreting the mod is just an attachment to the original loan. I will talk with a lawyer. Thanks!
1 vote Thank Flag Link Fri Jan 20, 2012
By theory yes; in practice no. No commercial lender foreclose on a mortgage; rather they foreclose under a trust deed. No deficiency judgments are allowed when foreclosing on a trust deed.
0 votes Thank Flag Link Tue Jan 24, 2012
Cory:

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*"
http://www.trulia.com/blog/steve_ornellas_mba_re_mastersgri/…

Good Luck!

-Steve
0 votes Thank Flag Link Mon Jan 23, 2012
Cory,
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
(951) 821-8211
harold@southerncaliforniashortsales.org
http://www.southerncaliforniashortsales.org
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Sun Jan 22, 2012
Sorry, but this situation is exactly why the HAMP program is doomed for failure. The majority of those who had their loan modified are only putting off the inevitable. Sorry for your situation.
0 votes Thank Flag Link Fri Jan 20, 2012
Hi Cory, you really need to speak to a lawyer. The rules change from State to State. Some states do not allow deficiency judgments, some do. If yours does then you need to look at the contract. And you also need to look at what is common for your area. My State allows deficiency judgments, but they are rarely pursued for other reasons. The only person who can really answer your question and perhaps provide you with options is an attorney.
0 votes Thank Flag Link Fri Jan 20, 2012
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