If someone forecloses there homes or short sales there home, will they or can they be responsible for the negative equity or the negative loss the banks took on the home? What if there was a second mortgage, will they be responsible for the extra dollars or does the bank lose out completely and have no recourse to collect money as the asset was reposessed?
Both judicial and non-judicial foreclosure are available, but the non-judicial deed of trust sale is overwhelmingly preferred.
California has a one-action rule, in which a lender must elect one action to take against the borrower if the borrower defaults. If the lender forecloses the deed of trust out of court, the lender has chosen one action and may not bring a lawsuit to recover a deficiency, which would be a second action. If the lender chooses to sue the borrower and obtain both a foreclosure order, and if the proceeds of the judicial sale of the real estate are not sufficient to repay the loan balance, then a deficiency for the balance is allowed. Such a suit is permitted as the lender's one action.
California lenders rarely elect judicial foreclosures.
Debtors may reinstate up to five days before non-judicial foreclosure sale.
No deficiency judgment is permitted after a non-judicial foreclosure or for a foreclosure on a purchase money loan. If the foreclosure is judicial, a deficiency judgment is allowed if the foreclosure was not a purchase money loan. California’s one-action rule requires the lender to foreclosure and sues for a deficiency at the same time. If the lender elects to foreclose only, it can’t elect to sue for a deficiency later on.
http://www.forecloseddreams.com/california-foreclosure-law
In the case of second mortgages or HELOCs (home equity lines of credit), California law does not protect the borrower from deficiency actions. There is still some question as to whether you create a purchase-money security interest when you buy a home, create a first and second mortgage simultaneously and then default on both mortgages.
http://www.bankrate.com/brm/news/bankruptcy/20070227_mortgage_foreclosure_deficiency_a1.asp
It is still owed after a foreclosure, but you can put a special agreement into a short sale that says that when you short sell it then they can't come after you for the difference. This is mostly with the first mortgage, I don't know about the second mortgage. You have to make sure it is in there, because the bank is not going to do it for you, they want their money. The second mortgage is an unsecured loan, and it will be hard to negotiate with them. When you try they will throw a fit.
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primary houses, not typically. You'd receive a 1099 for the difference. You most likely won't have to pay taxes on this amt. However, if you have PMI, it's up to that company, as they are taking the loss. You may have to set up a small monthly pmt with them. Consult a cpa for tax ramifications. 2nd mtg co's may try to collect or turn the loan into a personal unsecured loan. Investment properties at this point, you have to pay taxes on the difference. Also, in foreclosures, the lender may have the option of trying for a deficiency judgement against you. They may choose not to in this housing market.
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work in short sale dept at a big bank
By statute, California does not allow deficiency judgements for defaults of purchase money mortgages. The bank gets the home, and that's it. Of course, loans like HELOCS are not purchase money, so a bank can still go to court to collect an outstanding balance on a HELOC. That's why in California, the primary victims of the deflating housing bubble will be the banks, not the defaulting homeowners.
See Cal Code of Civil Procedure 580b
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Both judicial and non-judicial foreclosure are available, but the non-judicial deed of trust sale is overwhelmingly preferred.
California has a one-action rule, in which a lender must elect one action to take against the borrower if the borrower defaults. If the lender forecloses the deed of trust out of court, the lender has chosen one action and may not bring a lawsuit to recover a deficiency, which would be a second action. If the lender chooses to sue the borrower and obtain both a foreclosure order, and if the proceeds of the judicial sale of the real estate are not sufficient to repay the loan balance, then a deficiency for the balance is allowed. Such a suit is permitted as the lender's one action.
California lenders rarely elect judicial foreclosures.
Debtors may reinstate up to five days before non-judicial foreclosure sale.
No deficiency judgment is permitted after a non-judicial foreclosure or for a foreclosure on a purchase money loan. If the foreclosure is judicial, a deficiency judgment is allowed if the foreclosure was not a purchase money loan. California’s one-action rule requires the lender to foreclosure and sues for a deficiency at the same time. If the lender elects to foreclose only, it can’t elect to sue for a deficiency later on.
In the case of second mortgages or HELOCs (home equity lines of credit), California law does not protect the borrower from deficiency actions. There is still some question as to whether you create a purchase-money security interest when you buy a home, create a first and second mortgage simultaneously and then default on both mortgages.
http://www.bankrate.com/brm/news/bankruptcy/20070227_mortgage_foreclosure_deficiency_a1.asp
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