Foreclosure in San Diego>Question Details

Linda Sunste…, Real Estate Pro in San Diego, CA

well, according to you all there is no deficiency judgement, however, if the seller took out a HELOC and the second is forclosing, this is different.

Asked by Linda Sunstein, San Diego, CA Mon Dec 27, 2010

For instance the first has not started foreclosure proceedings, yet the second(which is a HELOC) has started the foreclosure process. They have every right to file a deficiency judgement to claim the deficiency amount. I think if you check your records, this would be a case where the scenario is not usual.

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All states are different but I believe here in New York The 2nd has so to speak, no hand and is forced to take what ever 1st offers usually 5%. The real fun starts where the 1st and 2nd are the same lender institution.
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0 votes Thank Flag Link Wed Dec 29, 2010
Bella 2004,

Great answer from Kenny Tan. Great to have an attrney respond. Kenny brought up a great point about the single action law. If the 2nd did foreclose I believe that would be their single allowable action. To Jane Grant's comment I would say that I have seen many 2nd trust deed holders foreclose "subject to" the 1st lien. They don't neccessarily have to pay them off, at foreclosure, when they take title.

Another good avenue to have seller do his/her due diligence on would be SB931. Maybe if the 2nd loses right to deficiency because of the single action law the seller would also be protected by SB931 (in CA) from the 1st lien.

In my experience, with proper proactiveness with an attorney, CPA, and experienced Realtor (in a short sale) the Seller can get out of deficiency judgements and tax ramafications. Again, this is not advice and each situation is different and needs to be counseled by licensed professionals in each category...
0 votes Thank Flag Link Tue Dec 28, 2010
In California, mortgage loans that was not a Purchase Money Loan is subject to a deficiency judgment. Happy funding, Rudi
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0 votes Thank Flag Link Tue Dec 28, 2010
Dear Bella
Is this a judicial or non-judicial foreclosure? Sorry I didn't get the earlier question. Also is this residential or commercial? I assume below that it is residential.

There are a few reasons why the borrower need not worry about the possibility of a deficiency judgment.

First, if the second as well as the first are both purchase money loans, they are non-recourse and the lenders can't seek deficiency judgment.

Second, say the second is a refi, hence a recourse loan. When the second forecloses and acquires title, it is now barred by the one-action rule to go after the borrower for deficiency.

Third, regardless of whether the second is a recourse or non-recourse loan, if the second submits a full credit bid (in most cases they would), the full credit bid rule bars any further action (except for fraud by the borrower like submitting a false loan application) against the borrower.

Fourth, as a practical matter, lenders don't come after defaulting borrowers for the one practical reason - why throw good money after bad ones. I've been doing foreclosure defense since the crisis began in 2007.
0 votes Thank Flag Link Mon Dec 27, 2010
Listen to Tyler, every case is different, and an agent especially is not the one to give you a one-size-fits-all answer. Good luck with your client!
0 votes Thank Flag Link Mon Dec 27, 2010
I would have my client check with an attorney. Right or wrong, you don't want to be wrong.

0 votes Thank Flag Link Mon Dec 27, 2010
As an agent-- for such issues, you really should be consulting with an attorney who specializes in real estate, or at the very least with your broker owner--and not relying on other's opinions, who are not directly involved in the transaction....
0 votes Thank Flag Link Mon Dec 27, 2010
You need to have the seller speak to an attorney. These are specific questions to which there are not blanket answers. Was the HELOC purchase money? If so there is no recourse. Is this a short sale? If so their ability to recourse is negotiable. If they foreclose it would have to be subject to the 1st lien in which case I would assume they couldn't claim deficiency until it was sold. Too many specific answers needed and nobody but an attorney is qualified to answer. Good luck.
0 votes Thank Flag Link Mon Dec 27, 2010
Bella: The reason this does not happen is because the 2nd, whether it is a HELOC or not would have to pay off the first to foreclose as would any 2nd trust deed.
0 votes Thank Flag Link Mon Dec 27, 2010
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