In California, can a lender go after nonoccupant borrower personally on a foreclosure or shortsale?

Asked by Claugra, San Francisco, CA Tue Jun 7, 2011

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Pacita Dimac…, Agent, Oakland, CA
Tue Jun 7, 2011

Since you're a mortgage broker yourself....isn't this a question you're more equipped to answer? Surely, legal advisors to your lending institution have provided case studis or legal opinions on such maters? if not, ths is a question you can pose to them.
2 votes
Eric Michael…, , San Diego, CA
Tue Jun 7, 2011
Disclaimer: Given that I am not an attorney, I can't answer this question in any type of definitive form. The information below is for entertainment purposes only and should not be relied upon for its accuracy or its relevance to your situation.

Having said that, In California, I believe a lender can proceed with what is called a "judicial foreclosure," which allows a lender to recoup their loses by suing a home owner for the amount the lender claims they lost.

In my untrained opinion, one method to protect yourself against this process, is to obtain an appraisal of your home at the time of foreclosure. If possible, obtain three appraisals from real estate agents or from a certified home appraiser, so that you have a clear picture of what your home is worth. Make sure all appraisals are in writing.

In theory, a bank can only go after you for what they lost. Meaning, in other words, if your home has a value of $400k and you owed $420k (you'd be $20k underwater), but the bank decides to sell it for $300k, that's not your problem.

They (the lender/bank) CAN go after you for the lost $20k, but NOT FOR THE FULL $420k you owe. Again, to clarify, they can't take your home and then sue you for the full amount of your loan. Your home is still worth something at the time of foreclosure, and just because the bank decides to sell it for $300k, does not mean it is not worth $400k. Though this applies to purchase monies loans only (money lent for the purchase of your home, and sometimes for home improvements such as swimming pools, etc).

I do not believe this applies to second mortgages where you took cash out (sometimes referred to as an equity loan). If you took cash out to make home improvements, than you may be protected. If you took cash out to send your kids to college, you may owe that money to the bank, but again, that is my opinion only. It's just as likely my opinion is incorrect.

In regard to a short-sale, again, I am not an attorney, and this is not legal advice, but sometimes banks will go after a lender for money owed, especially if a borrower took out a second mortgage that was not related to purchase monies.

I don't believe the above is at all unique to your situation. Sometimes banks won't go after a home owner, period. Sometimes they will. It all depends and it's impossible to predict.

I believe you should perform the following steps: A) seek the advice of a real estate attorney as quickly as possible. That advice can be had for a few hundred dollars, and many attorneys will give you an initial consultation for free B) Seek the advice of an accountant who understands the tax implications that can be associated with forgiven debt and to assess your particular situation (you may be able to avoid these penalties) C) Seek the advice of a real estate agent to make sure that your home is valued properly, and if you're considering a short-sale, to make sure that your home is marketed correctly and that the short sale is carried out properly. D) stay away from most Internet forums. They are filled with incorrect information and information that is state specific. Many states have different laws, so what pertains in Nevada, for example, may not pertain in California. There are also lots of troublemakers and uneducated posters, who will fill your head with horrible tales of world-ending consequences.

That is not the case and you're not in a unique situation. Millions are in the same position you may be in, Therefore, many lawyers are extremely educated on this subject and can assist you from start to finish. I highly advise you to seek the knowledge of one, as again, I am NOT an attorney and the information above is not legally sound advice.

Short-sales can be tedious and complicated and it's best to seek the advice of a dedicated real estate agent. Therefore, my advice is to interview 2 or 3 agents before you make your decision.

Best regards, and again, please be aware that the advice above is not legal advice, but opinion based advice only. I do not claim to be an attorney, nor should the above be classified as advice obtained from an attorney. Please seek the advice of a real estate attorney if you have any questions pertaining to your situation.

Good luck,
Eric Abrams
CA Broker
San Francisco/ San Diego/Arizona
CAR 01862927
1 vote
Karen Parsons…, Agent, Laguna Beach, CA
Mon Jun 13, 2011

I'm not an this is not a legal position. But, I am fairly certain that a borrower is a borrower and any loan which can be pursued after a foreclosure or short sale can also be pursued by a non-occupant borrower...that's for starters.

I also believe in California that the non-recourse only applies to the primary I think this could be a problem for the borrower.

But good question for an attorney.

0 votes
Mike Ackerman…, Agent, San Francisco, CA
Wed Jun 8, 2011
Love it!!!

You have definitely asked an interesting question no one is going to stick their neck on a chopping block to answer. Again it all goes back to finding someone who will give you an answer you or your client want to hear and then checking their credentials to see if they've ever walked the walk that they talk.

Good luck! In the meantime if you have a short sale and are looking for a listing agent to represent that buyer (or yourself) you may wish to give us a call.

Mike Ackerman
Zephyr Real Estate
0 votes
Steven Abrah…, Agent, LAGUNA BEACH, CA
Wed Jun 8, 2011
Is this an investment non-owner occupied property you are describing?
If so, there might be an issue of recourse.
Although we are an anti-deficiency state & the California Code of Civil Procedure Section 580(b) states in part:
"No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser", I have witnessed the following:
Purchase money loans – no deficiency if it is owner-occupied, residential one to four.
Typically Excludes: vacation homes, home-equity lines of credit (HELOC), investment properties where the borrower does not reside there, apartment buildings more than 4 units.
If I were in this situation, I would simply conduct a short sale & have the lien holders agree in writing that the obligations are satisfied in full.
Steven Abraham
"25 Years of Professional Real Estate Experience"
Real Estate Broker
Prudential CA Realty
Laguna Beach, CA
Disclaimer: This information is to be used for entertainment purposes only! I am not an attorney and the above information is a personal opinion!
0 votes
Eric Michael…, , San Diego, CA
Wed Jun 8, 2011
**********It's actually a very easy question to research. If you go to Barns and Noble and look at the foreclosure books, many of the books have individual sections or charts that dictate what action a bank can take or can't take, in California, against a homeowner in your situation. Though, keep in mind that just because a bank has a right to take a specific action DOES NOT MEAN that said bank will take such action.

Try this: call three different attorney's until you find one you feel comfortable with. Some attorneys can be a bit gruff. Other's can be akin to "your best friend." Based on person experience, I WOULD NOT use an attorney who answers your questions in a gruff manner.

There are good attorneys who went to Harvard and the are bad attorneys who went to Harvard (if you get my drift).

Again, follow my suggestion about the books. The information is VERY easy to find. The Barns and Noble (it could be a Borders, I do not recall) at the Bay Street Mall in Emeryville has an entire section on foreclosures, and you'll be able to find your answer within 5 to 10 minutes, without having to even purchase the book.

**********Disclaimer:, I'm not an attorney and the above is not legal advice, and should be used for entertainment purposes only. I do not claim the information is accurate, and it is opinion based only. I do not have formal legal training, and there is a high probability that the advice above is entirely incorrect. If I were in your situation, I would seek the council of an attorney to make sure that you're obtaining the most accurate advice possible.

Good Luck Again,
0 votes
Claugra, , San Francisco, CA
Tue Jun 7, 2011
As a mortgage broker, I have posed this question to all our wholesale represenatives and my associates. Can I tell you how many different answers I have obtained? Hoping an attorney would jump in! Still getting different answers!
0 votes
Oggi Kashi, Agent, San Francisco, CA
Tue Jun 7, 2011
Is it a recourse or non-recourse loan?
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0 votes
John Juarez, Agent, Fremont, CA
Tue Jun 7, 2011
If a borrower signed the loan instrument, they owe the money whether they occupy the property or not.

Whether the lender can pursue the debtor or not is another question. That question should be answered by an attorney who has had a chance to review all of the facts and paperwork in regard to the loan.
0 votes
J Mario Preza, Agent, Daly City, CA
Tue Jun 7, 2011
An answer to this question would have to include a bit more facts in order to do justice. For instance, are you referring to a purchase money deed of trust, an equity line of credit, a second deed of trust, etc.? Secondly, much also would depend on whether or not the loan was a loan after the fact, e.g., a refinance, a cash out refinance, etc. As a few have alluded to in their response, you may be best served to ask a legal professional, e.g., an attorney specializing in real estate law, this question as there would need to be a deeper understanding of what is at stake. However, in a simpler version of this matter, when a lender forecloses on a property in California, assuming it is purchase money loan, the recourse is the foreclosure against the securing property. A "deficiency judgement" would follow ("going after the borrower personally"), if other circumstances were present.
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0 votes
Mike Ackerman…, Agent, San Francisco, CA
Tue Jun 7, 2011
You are asking legal advice on a real estate board.

I have a number of articles I'd be happy to send, but I am not an attorney nor do I know your complete set of circumstances.

I have worked on many short sales and recently this has come up and and I've seen lenders waive their deficiency, but again each case is as different as the lenders and investors involved...

I also have a few good attorneys I'd be happy to refer you to.

Mike Ackerman
Zephyr Real Estate
0 votes
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