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We purchased two California condos as a 1031 exchange 10

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years ago. We put...
We purchased two California condos as a 1031 exchange 10 years ago. We put $80,000 down on each. We were paying interest only. We have just learned that, as of January 1, 2016, the 10 year anniversary of the mortgage, the principle will be added in as well. This takes our mortgage payment from $600+ to over $1300. We have never been able to sell these condos because after paying $300,000 for one and $310,000 for the other the values have dropped to below and finally now maybe equal with the mortgage balance of approx. $210,000.
These two condos are both rentals one for $1300 and the other $1400 a month. We have done little to upgrade them except some flooring in one. Besides mortgage, which includes taxes, there are HOA dues of $270.00, and Insurance.
During 2010 we had a family emergency and didn't pay the payments for about 8 months and was finally able to catch the payments up. Unfortunately one had a notice of default and a sale order on it. We have tried to refinance but to no avail because on Experian (not the other two reporting agencies) it shows as a foreclosure and we were turned down by a lender. Our lender (Seterus) will not remove this even though it never went to foreclosure This is the only blip on our credit.
My husband is 78 and I am 75 years old and having to pay the $1300+ payments will be a real hardship. I have talked to Seterus and after several representatives told me we should do a modification and after filling out the paper work they called and said this was not a good plan for us and we should do a Deed in Lieu and are really putting the pressure on.
Our question. if we do what they want and they sell it for less than the mortgage will we have to make up that deficiency? Will we have to pay CA or Fed taxes for mortgage relief? If we just quit paying and it goes to foreclosure - Same question. Thanks
Submitted: 1 year ago.Category: Real Estate Law
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12/6/2015
Real Estate Lawyer: Law Educator, Esq., Lawyer replied 1 year ago
Law Educator, Esq.
Category: Real Estate Law
Satisfied Customers: 119,473
Experience: Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
If you want to short sell the property, then you can indeed be liable for paying any deficiency judgment and as this is not a residence, but commercial property, you could take it as a loss, since you are losing rental income from the property.
If you keep the property and it is foreclosed upon, because it is not your residence, but rental property. The CA Anti-Deficiency law does not protect non dwelling property, e.g. commercial property or rental property in which the borrower does not dwell. See: DeBerard Properties Ltd v. Bun ***** *****m, et al, 20 Cal. 4th 659; 85 Cal.Rptr.2d 292 (1999).
So, if you cannot negotiate the deed in lieu of foreclosure, where there would be no deficiency judgment, then both the short sale and the foreclosure on this property could open you up to pay the deficiency judgment.
If Seterus is not foreclosing, you cannot force them to do so. Thus, you would need to negotiate with them or simply keep collecting rent and not paying the note if you cannot afford it and then if they foreclose and try to seek a deficiency judgment you can explore filing for bankruptcy and have that judgment extinguished.
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