Do you owe money to the second mortgage company if for example you owe 430,000 and 130,000 is the second and?

Asked by Robyn Martinez, Vacaville, CA Mon Aug 25, 2008

you only sale the home for 300,000...will the second come after you for the differance like it would turn into an unsecured debt? Does it matter if both lenders our the same. Help

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Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Tue Aug 26, 2008

Unfortunately, the correct answer to your question is MAYBE. There are many factors which come into play in determining whether the second trust deed holder can come after you for the monies owed, not the least of which is that many HELOC loans contain personal guarantees.

The good news is, if you are doing a short sale, this item becomes part of the negotiation. Make sure that you list your home with an experienced Short Sale Listing Agent. They will negotiate on your behalf to get the second mortgage holder to put wording in their acceptance of the short sale to protect you from owing additional money after the short sale. There are no guarantees. Many lenders are asking for either some money at closing or an unsecured note for part of the deficiency. It is all in the negotiations and how firmly you and your Realtor stand your ground. Remember, the bank does not want to own your home (this creates more issues for them than you or I even know), they want their money.

A good Realtor, in conjunction with your tax professional and perhaps with the additional assistance of a one hour consultation with a good real estate attorney, will help you make an informed decision on what is best for you. It all starts with your decision to move forward and with your choice of who to have on your team in this very sensitive, often difficult, and definitely long process.

I wish you much success in getting this chapter behind you and moving on with your life. Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
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Debt Free Da…, , 85260
Mon Aug 25, 2008
You wont have an unsecured debt, you will have a deficiency judgment and a 1099 if the second mortgage was taken out after the purchase of the property. If you can secure a short sale you should not have a taxable event.
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Tisza Major-…, Agent, Upland, CA
Mon Aug 25, 2008
Hi Robyn,

What you are talking about is a Short Sale (where the lender gets "shorted" on the amount that they are owed with their permission and agreement to forgive the balance of the debt). The good news is that if both of the loans are held by the same lender then it is usually much simpler to negotiate the deal.

In California the second can't be converted to an unsecured debt. However, you could still be liable (depending upon your circumstances) for the tax liability equal to the value of the shorted amount. Yes, there is a debt forgiveness plan in place but you need to consult an accountant or tax attorney to ensure that the program would apply.

If you have not already listed your home for sale I would strongly suggest that you consult with a Realtor experienced in handling Short Sales, (and if you don't know someone I would be happy to put you in touch with someone in your area) to explore your options.

Good luck with your situation it is fixable, but time is not on your side. So, please talk to someone sooner rather than later.

Take care and have a great day!

Tisza Major-Posner, Realtor, IVPG Realty (909) 837-8922
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