Earlier this year, the California legislature extended short-sale anti-deficiency restriction to all lienholders who approve short sales. What does this mean? It means that if any lender approves a short sale, they are prohibited from coming after the borrower later for a deficiency.
Marin County bankruptcy attorney explains how lien stripping in Chapter 13 works in California, and why it may be a good reason to consider Chapter 13 instead of Chapter 7.
If the lender on a first mortgage approves a short sale, then it CANNOT proceed against you later for a deficiency between the value of the property and the loan balance. Ever. This is not instead of CCP §580b (purchase money deficiency prohibition), or CCP §580d (non-judicial foreclosure deficiency prohibition), it is just another mechanism for accomplishing the same result, albeit under different circumstances. Because §580b already applies to purchase money loans, this new statute will apply only to refinance loans. It does NOT apply to junior liens.
Marin and San Francisco bankruptcy attorney on: Letting a home go by short sale may enable a borrower to re-qualify to buy a new home sooner than would likely be the case in the event of a bankruptcy or foreclosure.
In case you missed it, check out the the Daily Show’s send up of one version of the “Who’s-to-Blame for the Mortgage Crisis” as The Daily Show and Wyatt Cenac as they chronicle the Mortgage Bankers of America’s self righteous preaching of the moral obligation to pay a mortgage in the face of declining values, despite their own default of a $79 million loan on their own HQ building.
As this dog-tired economy continues to drag on, with no relief in sight and no bounce-back in home prices appearing anywhere on the horizon, the single question I am asked most frequently is “Should I walk away from my mortgage, and if I choose to do that, what are my options?” Usually it comes in [...]
If you file Chapter 7, and either are current or get current with your mortgage(s), then you can most likely keep your home. If however, you are in arrears, and are not able to bring the loan current, then–unless you can complete a mortgage modification that allows you to stay–you are likely lose the home. On the other hand, if you file Chapter 13, and are able to successfully get a payment plan approved by the Court, then you may be able to stay. This is because in a Chapter 13, you can take the outstanding mortgage arrearages, and pay them back through the Chapter 13 plan over the 3 to 5 year commitment.
On June 3, 2010, the California Senate passed, by a convincing margin of 30 to 4, Senate Bill 1178 which extends the protections of CCP §580b to any loan taken out to refinance a purchase money loan, up to the amount of the original purchase money loan which is refi’d. Here’s how that works: I take out a loan for $500,000 which I use to buy my home. A few years later, I refinance that loan with a new loan for $700,000, $500k of which goes to take out the original purchase money loan, and he other $200k of which I use for other purposes. Under existing law, because the new loan is no longer a “purchase money loan,” but is a refi of a purchase money loan, I would not be protected against possible personal recourse by the lender if it foreclosed and did not recover enough on the sale of the residence to pay off the whole loan. Under the new law–if it passes the California State Assembly–I would still be protected on the refinance loan up to the amount of the original purchase money loan that was refinanced, or in my hypothetical, $50ok. That would leave me exposed on the balance in excess of that refinanced amount. In my hypothetical, up to $200k.
60 Minutes show on strategic defaults.
California has some of the most generous, pro borrower anti-mortgage loan deficiency statutes in the country. Here in one place they are listed and briefly described. This post is not a substitute for specific legal advice, however, and if you think you may have a deficiency exposure, you should see a qualified real estate lawyer to help you plan a course of action.
