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Category: Real Estate Law
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Experience:  Attorney and landlord with ten years experience advising landlords and tenants
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My home was foreclosed with a first and second mortgage and

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My home was foreclosed with a first and second mortgage and then sold for less than half the value of the loans. The original lender had both loans, an 80-20 but sold the second to another servicer. If I am liable for the difficiency or balance left after the sale, how does the lender who foreclosed on me collect if I don't have much left except personal property? If I inherit some money and buy another home, can the lender who foreclosed, or the owner of the defaulted 2nd mortgage go after my new home? Or any of my remaining property. I'm in California.
Submitted: 5 years ago.
Category: Real Estate Law
Expert:  GoLaw replied 5 years ago.
Thank you for using Just Answer. I need some additional information in order to respond to your inquiry. Were the loans in question obtained to purchase the property?
Customer: replied 5 years ago.
Good question. No, the loans were a re-finance. How would that be different from the original loans?
Expert:  GoLaw replied 5 years ago.
If the loans were purchase money mortgage, in other words, the loans used to purchase the house, the lender would not have a right to a deficiency judgment under California law. Unfortunately, if you refinance, you lose this protection. Since the loans in questions are considered "hard money" loans, the lender does have a right to a deficiency judgment. However the amount of the deficiency is the difference between the amount of the loan and the fair market value of the property, not necessarily the amount paid at the foreclosure sale.

The lender(s) must move for a deficiency judgment within three months of the sale. At the hearing, which you may want to attend, the court will determine what the fair market value of the property. However, many lenders do not actually go to the trouble of obtaining a deficiency judgment because of the costs involved, which include attorneys' fees and appraisal costs.

To answer your original question, the judgment will remain on the records for 10 years. The lender can garnish your wages and engage in other collection practices as allowed by California law. Additionally, the judgment will act as a lien on any real property that you acquire for 10 years (unless it is renewed for an additional 10 years).

Good luck.
Customer: replied 5 years ago.
I need some more clarification. This is the first I've heard of the three month limit of judgement. It has been a year since foreclosure. Does that mean it's too late for the lender who foreclosed and sold my house to seek the deficiency? What about the holder of the second mortgage tht has been transferred twice already? What of I buy a house on government land? Could the lender or second mortgage holder force a sale? Or could they put a lien on a house that doesn't have the land with it, such that the full amount of the deficiency is deducted from the sale price when sold? What if the house is not sold but just rented out? Does the mortgage holder have a right to the rental income? It gets complicated. What if I own the house in a joint-tenancy with my mother or someone else and I die. The house then goes to the survivor. What about the lien, if there is one? What's the best thing I could do to protect my new home? Would bankrupcy help? What happens to your home in bankrupcy?
Expert:  GoLaw replied 5 years ago.

It sounds like the first mortgage holder did not seek a deficiency judgment. So, you should not be held liable as far as that mortgage is concerned. If the second mortgage holder received any of the proceeds (in other words, if the first mortgage was fully satisfied by the proceeds of the sale and the remainder went to the second mortgage holder) then it would have had to file a deficiency judgment, but from your account, this doesn't seem to be the case. The second mortgage holder could, potentially file a separate action on the mortgage note. The statute of limitations for these actions is usually 7 years.

 

If the second mortgage holder wants to obtain a judgment against you, you will be notified of the court action. In this case, you should demand that the second mortgage holder produce the original note. If the second mortgage holder is unable to do so, their action against you will fail.

 

The judgment will act as a lien on any of your deeded property. If the park service property is filed with the county, then it would act as a lien on your interest. Lien holders usually don't foreclose on property, they simply wait until it is sold and get the proceeds form the sale.

 

As far as the joint tenancy, the lien would still attach to the property. If you die, your interest goes to your joint tenant, and the lien may be extinguished.

 

Bankruptcy usually discharges deficiency judgments. Many times, people are able to keep their residences after declaring bankruptcy, but you should really speak with a bankruptcy attorney regarding your situation. The amount of detail required to advise you on whether you would be able to keep your property is too extensive for this format.

 

However, if I were in your position, I would not consider bankruptcy, based solely upon this issue, until or unless the second mortgage holder files suit. They may not intend to do so and bankruptcy may not be necessary.

 

Good luck.

Customer: replied 5 years ago.
Very good answer. I just need to review the key points and we are done.
1) It has been over a year since the foreclosure. The property sold immediately after placed on the market for less than half the amount of the first mortgage. I understand from you that the first mortgage holder had 3 months from the foreclosure to sue for the deficiency. There was no filing to recover the dificiency. Therefore I do not have to worry about the first mortgage holder suing since the 3 month dealine has passed. True?
2) The second mortgage holder has seven years to sue for the $90,000 amount of the loan but can only fix a lean on any future property I buy. They cannot garnish my wages or force a sale of my property if I inherit money and buy a house. The second mortgage has been transferred twice now, so perhaps they don't have the original note anymore. Does this mean the note must be original, or can it be a copy? What if I don't sell the new house with the lien on it? What if I die with a joint-tenancy? Did you say the my survivor in the joint-tenancy does not have to pay my lien? Does a joint-tenancy supersede the lien? I don't want to file bankruptcy since I can now handle my debts fine with my income from my job, now that I don't have the mortgage tp pay. What advantage would a bankruptcy provide if all I would have to worry about is a lien on a new home? Would the bankrupcy make the lien go away. If I inherit money would the second mortgage holder be able to take their loan out of the inheritance? Is there interest still accruing on the second mortgage? Thanks, XXXXX XXXXX narrowing it down to the essentials.
Expert:  GoLaw replied 5 years ago.
1. Indeed, the first mortgage holder's time to get a deficiency judgment has elapsed.

2. You had only asked about property, but yes, they can garnish your wages and attach monies that you have in a bank account (which would include inheritances). Generally, the note must be original or the bank must provide a copy and a valid reason that the original note isn't available (such as a fire or flood). A lien is something that attaches to the property that you own. If you die and your joint tenant inherits the property, it is not being sold, it simply becomes the property of the joint tenant. Since you no longer have an interest in the property, the lien does not attach.

If you do not have any other reason to file for bankruptcy, filing at this point would be silly. The lender has not commenced an action to collect on a mortgage note. If they do commence an action, you may want to consider bankruptcy as an option, but even then, you should discuss whether this is a good option with an attorney. And finally, yes, interest does continue to accrue, as do late charges.

Good luck.
Customer: replied 5 years ago.
Good stuff. I am relieved I don't have to worry about the first mortgage, but now I have to sweat for six more years about that second mortgage which, with interest and lates fees could grow as large as the original first mortgage. I suppose there are a million people in my situation now that have second mortgages still hanging after foreclosure. If the banks got bailed out by the federal governent with taxpayers money to make up for deficiencies in bad loans and then collect again on my second ortgage, aren't they getting paid twice as much? I promise this will be my last question and then I will pay you extra. Thanks, XXXXX XXXXX were down the street.
Expert:  GoLaw replied 5 years ago.
I believe that there are safeguards in the bill against exactly what you describe. As I understand it, the federal program mainly provides guarantees for loans that were not already foreclosed upon and the federal government, in certain cases, buying loans that are subprime. Usually, a second mortgage holder will bring a suit sooner rather than later. The poor economic conditions may actually work in your favor, as banks cannot go after everyone and if you don't have substantial assets otherwise, they may very likely choose to not pursue the judgment. Be sure in the interim, however, to never sign anything confirming the amount owed or whatnot. If you confirm the amount owed or make a payment, the statute of limitations will start over.

Good luck.
Customer: replied 5 years ago.
THANK YOU. HOW CAN I REQUEST YOU IF I HAVE MORE QUESTIONS IN THE FUTURE? YOU SEE TO REALLY KNOW THIS STUFF. WHERE ARE YOU LOCATED?
Expert:  GoLaw replied 5 years ago.

Thank you for your kind words. You can request me in particular in the future. The process for doing so is described here.

 

I am located in New York, but I am also licensed in Virginia and deal with property transactions all over the country.

 

Good luck with getting through your foreclosure. I hope that everything works out for you.

GoLaw, Lawyer
Category: Real Estate Law
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Experience: Attorney and landlord with ten years experience advising landlords and tenants
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