I owner financed a rental property to two buyers with a note securing a deed of trust. Am I correct that?

Asked by Randy Randall, Laguna Niguel, CA Fri Jul 31, 2009

if I am forced into a Trustee Sale that I can sue them judicially for the deficit judgment. Also, do you personally know of any decisions whereby the courts in CA have agreed to do the right thing and assist the beneficiary? My belief is, had these buyers and borrowers made money, it would not have benefited me, so why should I be penalized? Because it is a rental property I am of the belief that this loan is a recourse loan! To further complicate things I borrowed money on this note!
Question 2: If I should renegotiate the terms of the loan with the borrowers, i.e. modify the rate, etc. is the first agreement void? Do I have to start from scratch and redo the deed of trust and the note?

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Steven Abrah…, Agent, LAGUNA BEACH, CA
Sat Aug 1, 2009
I am not an attorney! The information provided is only a personal opinion and you should consult a real estate attorney!
It is my understanding that you might be able to pursue the deficiency judgment.
1). Try to work a solution which will accommodate both of you.
If this does not work.
2). As the beneficiary you can choose one of two methods to foreclose (judicial or non-judicial).
This is where it gets hairy.
Does your Deed of Trust contain a "power of sale clause"?
If so, it is my understanding the Trustee can foreclose non-judicially.
This is cheaper and quicker.
Ask your attorney if you can pursue a deficiency judgment in a non-judicial foreclosure.
Remind your attorney that this property was a rental and a non-owner occupied (investment property).
Judicial sales may offer the Trustor the right to redemption. Ask your attorney about this!
There are advantages and disadvantages as you can see to both!
Does the Trustor have equity in another property or something of value?
3). I personally would request the Trustor return the property back "Deed-in-Lieu". This may be the best option for both of you!
Your question definitely requires a seasoned Real Estate Attorney!
Ask your attorney to offer past cases which will give you some idea of the path you should take!
Good Luck!
Steven Abraham
Prudential CA Realty
949.378.4005 Cell
“Montage-Laguna Beach”
0 votes
Emily Knell, Agent, Huntington Beach, CA
Sat Aug 1, 2009
I have a listing right now where this same exact thing is happening on an 8 unit investment property. The owner had carried a 1st loan & now the owner on title is defaulting. He issued them a Notice Of Default to my client, who in turn now has 3mos & 21 days to try to sell. The whole situation is a little bit more screwy, there's a 2nd with another private investor......so that's why it's considered a short sale. In fact the owner of the 1st loan will probably have to take a cut on his investment as well.

It is probably better for you to get them to just sign the house back over to you "deed in lieu of foreclosure", that way you can take control NOW rather than having to wait the 3.5mos. If your property has negative equity now & you do a loan modification with these borrowers who are investors, my opinion is chances are very high that they will just default again & then you're still stuck with a negative asset.

Let me know if you'd like to discuss this further.

0 votes
Joe Homs, Agent, Laguna Hills, CA
Fri Jul 31, 2009

Question? I am going to assume that you own the Deed of trust that you are speaking about and the borrowers are not making their payment. If that is correct then you can foreclose on them, take possession of the property, and then evict them.

Yes, you can modify the loan, (Deed of Trust & Note) if you are the owner of that note. If there is enough equity in the property, then just foreclose on them and sell it when you get possession.

Hope this answers your question, if not shoot me an email with more thoughts.

Joe Homs
Wright Realty Partners
Mission Viejo
0 votes
Steven Ornel…, Agent, Fremont, CA
Fri Jul 31, 2009
Hi Randy, you are going to need to do this correctly from the start. You should only be taking advice from a Real Estate Lawyer who has seasoned experience in these situation(s).

I'M NOT A LAWYER, nor am I aware of ALL the details of your circumstances; however, my opinion is as follows:

Question 1: Since you said you financed the loan to purchase the house, and if the buyers have not refinanced, the loan(s) you provided are non-recourse loans, and therefore, I believe no deficiency judgment is allowed; however, this is why you need to talk with a Lawyer!

Another reason to talk to a lawyer is to get an answer to your question concerning any precedence setting cases.

If you sold the property to the two individuals it cannot also be a rental for you, unless of course you only sold a portion of the ownership, which is yet another reason to involve a lawyer.

Question 2: You may not want to hear this, but talk with a lawyer, seriously!

Best, Steve
0 votes
C2 Financial…, Mortgage Broker Or Lender, San Diego, CA
Fri Jul 31, 2009

That is unfortunate. I highly recommend speaking to a local real estate attorney who would be the best source to assist you.
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