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socrateaser
socrateaser, Lawyer
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I want to start a short sale on a rental home. We had planned

Resolved Question:

I want to start a short sale on a rental home. We had planned to sell it when we purchased the home we are living in, but then the market tanked and it is now valued about half less than what we owe. The problem is we have a second home equity loan on the house for $50,000. Through my research I have learned that after the house sells the company that holds the 2nd mortgage can give me a deficiency judgement for the amoun owed. Is there any way to prevent this? Do I need a lawyer? What can the mortgage company do to me?
Submitted: 7 years ago.
Category: Legal
Expert:  socrateaser replied 7 years ago.

If the HELOC was put on the property as part of the purchase money for the property -- meaning that the property could not have been purchased without the HELOC, or the HELOC replaced a previous loan that was part of the purchase money for the property, then you can defend against a deficiency judgment on grounds that it violates Code of Civ. Proc. Section 580b.

 

If the above is not true, then a deficiency judgment can be had by the creditor, and your only recourse to avoid the deficiency is bankruptcy.

 

Hope this helps.

 

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Customer: replied 7 years ago.
Thank you for getting back to me so quickly. The home equity loan was not used to help purchase the house.Just in general is it common for the mortgage companies to file a deficiency judgment. Especially with the market being in bad shape and I'm sure there are a lot of short sales and foreclosures. Also, if the property was foreclosed instead of doing a short sale could a def. judgement still be made? If one is made would have to go to court? Or is there anyway to negotiate with the mortage company or could i hire someone to help settle on a lower amount? Or is it a case of where I would have to end up paying the amount owed? How long do they have to file the judgement?
Expert:  socrateaser replied 7 years ago.

Just in general is it common for the mortgage companies to file a deficiency judgment?

 

A: Yes. Very.

 

Especially with the market being in bad shape and I'm sure there are a lot of short sales and foreclosures?

 

A: Doesn't matter. Lender has a fiduciary duty to shareholders to try to recover its money.

 

Also, if the property was foreclosed instead of doing a short sale could a def. judgement still be made?

 

A: Short sale contemplates a release of the seller from liability for any deficiency. If the seller doesn't get a release, then the seller is a fool for selling.

 

If one is made would have to go to court?

 

A: Yes. It's a deficiency "judgment."

 

Or is there anyway to negotiate with the mortage company or could i hire someone to help settle on a lower amount?

 

A: Everything is negotiable except death and taxes.

 

Or is it a case of where I would have to end up paying the amount owed?

 

A: See previous answer.

 

How long do they have to file the judgement?

 

A: Three month (CCP §337)

 

A:

Customer: replied 7 years ago.
Sorry, just one more thing I need clarified. If the short sale contemplates a release of the seller from any liability or deficiency then how can they make a def. judgement?
Expert:  socrateaser replied 7 years ago.

There are two components to a typical California mortgage:

 

1. A security instrument/promissory note;

2. A trust deed.

 

The lender can waive full payment on the note and reconvey the title granted by the trust deed to the seller, thereby permitting the buyer to take title free and clear of the lien.

 

But, the note remains valid and enforceable -- it's just not secured by the real property any longer. So, if the lender isn't paid on the note, the lender could get a deficiency judgment and then attempt to collect on the seller's other nonexempt assets.

 

The point is that the buyer is protected by the reconveyance of the deed. But, the seller is only protected by the lender's marking the note "paid in full" and returning it to the seller - or, alternatively by executing a release to the seller..

 

Otherwise, legally, the seller still owes on the note.

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