Kasy, Home Seller in Mountain House, CA

Thank you very much for answering my previous questions. However, I am still unclear on why filing

Asked by Kasy, Mountain House, CA Fri Nov 14, 2008

bankruptcy is necessary? Isn't in CA, the law states that as long as the 1st & 2nd mortgage was taken out for purchasing the home, no deficiency judgement can be done by lenders. Also, how is the 2nd loan (Home Equity line of Credit) from Countrywide turned into promissory note that follow the former homeowner of the property is foreclosed on. The original loan documents for these two loans was clearly used to purchase the house. I have heard that the lender can bring deficiency judgement against you if you took out the Home Equlity line of credit after the house was purchased. Also, I don't think we can file bankrutpcy because we do have two other properties that are rental. Both of these properties are not free and clear. I highly debt that the lenders against these properties will allow us to file bankruptcy since they are receiving their monthly mortgage paymeent since we have collected rents.

Please provide more insight into my situation if possible. Much Thanks!

Help the community by answering this question:


Hi...I may be able to help. You can also find additional info at the site below.

If the money from the 1st and the 2nd was entirely used as purchase money, and if this is your primary residence, the debt charged off should be forgiven under the mortgage debt relief act.

Your lenders will question the rental properties...be prepared with answers.

Your second will indeed try to may you sign a promisary note on the amount forgiven. Just tell them NO.

Is your home for sale as a short sale property? I negotiate a lot of short sales and some lenders are mor difficult to work with than others. The good news is....they will want to get this off their books before the end of the year. Feel free to contact me if you have questions. 925-867-4663

(You may also want to seek the advice of an attorney.)
0 votes Thank Flag Link Fri Nov 14, 2008
The Hagley G…, Real Estate Pro in Pleasanton, CA

You should seek all answers regarding this from the appropriate attorney. As real estate professionals, we are not allowed to give legal advice.

William makes a very good point regarding bankruptcy law changes. New laws went into effect October 2006. Chapter 11 may be a better alternative vs Chapter 7 - that's where an attorney is necessary. As far as the mortgage forgiveness debt relief act, it only applies to primary residences. I'm not sure if your primary residence foreclosed or if it was a second home. Here's a direct IRS link that should help answer some of that: http://www.irs.gov/individuals/article/0,,id=179414,00.html.

I hope that helped!
0 votes Thank Flag Link Sat Nov 15, 2008

You're asking some complex questions with A LOT of ramifications.

All loans for property involve two things: a promissory note and a deed of trust. The 2nd from Countrywide didn't just "turn into" a promissory note--it already was one. Something that's not clear: If the 2nd ffrom Countrywide is a home equity line of credit, then how was it used to purchase the house? Home equity lines of credit aren't issued until after the house is owned. A mediator will ask this question.

It's been a few years since I was a developer in California, but I think you've understood correctly on the deficiency possibility for the 2nd. The 1st mortgage probably is not at risk for deficiency.

As for bankruptcy--I'm not sure you can't file. Your petition may be denied, but I think you can file. If you could, that would delay everything. My best advice is to go talk to a bankrpuptcy lawyer. The few hundred bucks you may have to pay for advice could save you thousands.
Web Reference: http://orenconeighbors.com
0 votes Thank Flag Link Fri Nov 14, 2008
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