The first question an upside down homeowner must ask themselves is why do a short sale.
Do I wish to help the lender?
Do I wish to help the buyer?
Do I wish to make money for the Realtors?
What am I doing for myself?
Am I really saving my credit?
Maybe, for now it looks like a short sale is better for your credit score, but that could change.
Am I risking tax for loan forgiveness by doing a short sale?
If you are a california homeowner you may be hitting yourself with a very large tax bill for loan forgivness. If the bank writes off $100,000 you could get hit with a tax bill as if you received $100,000 in income. That might even jump your tax bracket.
I have heard many realtors and loan brokers say there is no way around it.
Wrong, a foreclosure or deed in lieu does not cause loan forgiveness for some california home owners where a short sale does. (there are other ways to eliminate or minimize the tax bill)
In our next post will show how some short sales have credited deficiencies for home owner where none existed before.
Saturday, October 27, 2007
Sold out juniors in California foreclosure law
A further exception to consider is that 580 d does not bar recourse seconds from pursing deficiencies against homeowners.
We have read that Indy Mac says it is going to seek deficiencies against California homeowners.
Because properties values have slid about 20% many of those 100% financing 80 20 loans will put the second into a sold out junior status. If you do not have purchase money protection you might want to review all our pre-foreclosure solutions including a short sale.
Sold out junior situations are one of the situations in which a San Diego homeowner could really benefit from a short sale
We have read that Indy Mac says it is going to seek deficiencies against California homeowners.
Because properties values have slid about 20% many of those 100% financing 80 20 loans will put the second into a sold out junior status. If you do not have purchase money protection you might want to review all our pre-foreclosure solutions including a short sale.
Sold out junior situations are one of the situations in which a San Diego homeowner could really benefit from a short sale
Exception to Recourse loans and deficiencies
A lender may have the right to pursue a deficiency but it still has to decide whether to go the longer tricker route of pursuing a judicial foreclosure or using a non judicial foreclosure or trustees sale.
Many if not most people tell homeowners not to worry about deficiency after a foreclosure. (watch out for short sales, many lenders do seek a deficiency after a short sale to the financial ruin of the homewowner and dismay of Realtors who practice law without a license and call themselves short sale specialists and loss mitigators)
It is true that most banks sought non judicial private sales in the early and mid 90s, but back then the amount were much smaller and much of the real estate mess in san diego was caused by restructuring and relocation.
This time around many people still have high paying jobs whose salaries could be attached and whose deficiencies are greater than six figures.
We have already seen many banks say they will seek deficiencies on seconds.
Many if not most people tell homeowners not to worry about deficiency after a foreclosure. (watch out for short sales, many lenders do seek a deficiency after a short sale to the financial ruin of the homewowner and dismay of Realtors who practice law without a license and call themselves short sale specialists and loss mitigators)
It is true that most banks sought non judicial private sales in the early and mid 90s, but back then the amount were much smaller and much of the real estate mess in san diego was caused by restructuring and relocation.
This time around many people still have high paying jobs whose salaries could be attached and whose deficiencies are greater than six figures.
We have already seen many banks say they will seek deficiencies on seconds.
California Recourse loans and Short Sales
If you loan does not fit within one of the exception cited in the previous post, you most likely have a recourse loan. (some loans may be written as non recourse loans as part of retirement planning vehicles so you may wish to read your loan document)
What does it mean if a San Diego homeowner has a recourse debt. It means the lender could elect to go after the homeowner for a deficiency between the amount of the loan and the amount it got paid after a foreclosure sale.
What does it mean if a San Diego homeowner has a recourse debt. It means the lender could elect to go after the homeowner for a deficiency between the amount of the loan and the amount it got paid after a foreclosure sale.
Recourse vs non recourse loans and short sales
As seen in a previous blog entry -
barring certain exceptions a loan is a non recourse loan when the loan is made to purchase 1-4 units, the money goes into the purchase and the owner intends to occupy at least one of the units.
or, when the seller "carries back" some or all of the financing for the purchase of real property.
It has been noted that some exceptions to the purchase money protections might be waste, and fraud.
Practice tip, a short sale might be an opportunity to draft a release which could extinguish any problems which may have been part of the original loan transaction for both the lender and the borrower.
Now some people contemplating a short sale may have to consider whether their loan applications were less than perfect.
If there were problems with your loan application do not despair. Speak with your San Diego attorney. You have many options including short sale, deed in lieu or perhaps even looking into whether the loan broker made mistakes
barring certain exceptions a loan is a non recourse loan when the loan is made to purchase 1-4 units, the money goes into the purchase and the owner intends to occupy at least one of the units.
or, when the seller "carries back" some or all of the financing for the purchase of real property.
It has been noted that some exceptions to the purchase money protections might be waste, and fraud.
Practice tip, a short sale might be an opportunity to draft a release which could extinguish any problems which may have been part of the original loan transaction for both the lender and the borrower.
Now some people contemplating a short sale may have to consider whether their loan applications were less than perfect.
If there were problems with your loan application do not despair. Speak with your San Diego attorney. You have many options including short sale, deed in lieu or perhaps even looking into whether the loan broker made mistakes
Deficiency - Sold out juniors
Deficiency After Nonjudicial Foreclosure: "Cal. Code Civ. Pro. 580d does not bar a deficiency for a sold out junior (see Walter E. Heller Inc. v. Bloxham, 176 Cal.App.3d 266 (1985)), although, as we have seen, section 580b will bar some sold out juniors from recovery of a deficiency. However, the holder of a junior deed of trust that has sold itself out through non-judicial foreclosure on its senior lien will be barred from a deficiency on the note secured by the junior lien. In Simon v. Superior Court, 4 Cal.App.4th 63 (1992), a bank gave two separate, sequential loans to a debtor. The first loan, for $1,575,000, was secured by a first deed of trust on the debtor's personal residence. The second loan, for $375,000, was secured by a second deed of trust on the same property. Neither loan was purchase money. After default, the bank non-judicially foreclosured the first, credit bidding less than the amount due, and then sued the debtor for $375,000 on the second note. The court barred the bank from recovery on the second note, holding that it amounted to a deficiency barred by 580d."
Deficiency After Nonjudicial Foreclosure
Deficiency After Nonjudicial Foreclosure: "Cal. Code Civ. Pro. 580d bars a deficiency following a non-judicial foreclosure. Prior to its enactment in 1940, creditors could obtain a deficiency (unless barred by Cal Code Civ. Pro. 580b) following either judicial or non-judicial foreclosure, but judicial foreclosure was (and still is) subject to redemption for a year following sale and non-judicial foreclosure was (and still is) free of any right of redemption following sale. Enactment of Cal. Code Civ. Pro.580d is therefore said to have created a 'parity of remedies,' allowing the creditor to elect between judicial foreclosure (with a right to a deficiency but subject to a statutory right of redemption) and non-judicial foreclosure (with no right to a deficiency but free of the right of redemption). By barring a deficiency following non-judicial foreclosure, the hope was to discourage underbidding, a result supposedly accomplished for judicial foreclosure sales by the statutory right to redeem, following foreclosure, for the amount bid at the foreclosure."
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