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Terry L.
Terry L., Attorney
Category: Bankruptcy Law
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Experience:  Better Business Bur 15yrs bankruptcy experience. Chicago Bar
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I live in California and I have an home that I purchased as

Customer Question

I live in California and I have an home that I purchased as a primary residence. I have two loans on the property that are the original loans (one for 20% and the other for 80%) from my bank (Wells Fargo). I have since married and moved, so this property is now an rental (has been for 1 yr.) I'm wanting to have the bank foreclose on the property. The property has negative equity and I'm upside down by about 120K. I understand that most HELOC loans are exempt from the non-recourse law of california. The loans that I have are equity loans (smart fit equity line) even though they are the loans that the bank gave me soley for the purchase of the house.   I put no money down on the house and the bank financed the whole price of the house via these two loans.   Given the fact that they are technically equity loans, does that make them exempt from the non - recourse laws? Will the bank try to collect on the unpaid ballance?
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  Terry L. replied 5 years ago.
Are you asking this question with bankruptcy in mind?
Customer: replied 5 years ago.
No. I just want to know if the bank is likely to come after me based on the fact that my loans are equity loans even though the loans are for the original purchase of the house and nothing else
Expert:  Terry L. replied 5 years ago.
Ok, if you were considering bankruptcy, then if filed, there is nothing that can be collected on after the foreclosure is complete.

Outside of a bankruptcy filing, it may be permissible for a mortgage lender to proceed after a debtor for a deficiency balance.   California does allow a mortgage company to use a judicial foreclosure, but they do usually when the mortgagee has other major assets. This rule lets a the lender either pursue non-judicial foreclosure, (cheaper and quicker), or judicial foreclosure (more expensive, longer) but lets the mortgage company go after the borrower for the deficiency balances.
Customer: replied 5 years ago.
It is my understanding that the bank can only come after you (via judicial foreclosure) if the funds were used for other than the purchase of the home. This would typically be an second or equity line of credit, etc. I'm wondering if because my loan is called and "Equity line" if this will be the case, even though it is the original loan and was completely for the purchase of the home.
Expert:  Terry L. replied 5 years ago.
If the first mortgage chooses to foreclose with non-judicial foreclosure, the second/Heloc can still sue contractually and collect on the balance, since there was a valid debt.
Customer: replied 5 years ago.
I can see that you are not going to be able to answer my question. If you read my original question you would see that both original loans are HELOC loans. The whole purchase of the home is with an equity loan (Wells Fargo Smart fit Equity Loan). That is the point of my question. There is no conventional first and second. Thus, I was wondering (based upon that fact that they are both equity loans), if the bank is more likely and/or able to sue, even though the loans were for the entire purchase of the house and not from other than property purchases. Don't bother to reply, I'll get my info elsewhere
Expert:  Terry L. replied 5 years ago.
The point you are driving at is technically irrelevant, a first mortgage can foreclose, whether it is called a HELOC, First Mortgage, Equity line, whatever. The second is the second, whether it is a HELOC, EQUITY LINE, SMART FIT, whatever. The first to be recorded is the first, they can foreclose. The second to record on title, usually won't foreclose, and waits for the first. If the first forecloses non-judicially, you still have a contractual obligation with the second, whatever it's name may be. Think of it like contracts....you still are obligated to them. If there is a judicial foreclosure, the court orders the release of subsequent loans (2nd, HELOCS whatever) and may order them eliminated. OTherwise, you and the Wells Fargo Smart fit Equity Loan still have to deal with #2 if it is a separate loan. You are getting caught up on semantics on what it was called originally.

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