Replies to This Discussion

Permalink Reply by Smitty on March 15, 2012 at 3:07pm

You are confusing deficiency with tax relief and they are completely separate.

Most lien holders other than the first get 10% of the balance, although Greentree is a nightmare.  they usually want more than 10%, but any lien holder can demand anything they want...doesn't mean they'll get it.

If it goes to FC there is no "forgiveness" nothing was forgiven. The lender can chose to forgive the remaining balance later, but usually they try to collect in court if it goes to FC or they sell the debt to a collections agency. 

The MDFA (Mortgage Debt Forgiveness Act) usually applies to only first homes primary residences and usually the first loan.  Although I think purchase money counts.  The homeowner would normally have to pa taxes on the "forgiven" portion of the note, but up until the end of this year they won't if it falls under the primary residence provision.

Permalink Reply by Uilani De Motta on March 15, 2012 at 3:39pm

Thank you for your response.

Permalink Reply by Harry Clay on March 15, 2012 at 3:36pm

I always check from which state the poster is posing a question. Uiliani is in CA, the same as me.

I believe Smitty practices back East. While her opinion may be correct in her state, I would say there remains confusion as to what happens here in CA.

If there is a Trustee Sale, the 1st mortage holder is finished. They don't get to sell the debt to collections.

If the 2nd was truly purchase money, they quite likely are also finished.

But if it was a HELOC, they probably still have recourse.

I have never yet seen a 3rd mortgage that was taken out 14 days after the 1st & 2nd were recorded that would qualify as Purchase Money. It is quite likely the 3rd may still hold recourse.

I think this link from NAR will give a more definitive answer to the questions posed:

http://www.realtor.org/government_affairs/mortgage_debt_cancellation

Permalink Reply by Uilani De Motta on March 15, 2012 at 3:41pm

Thank you! Yes CA is a tricky state...Yes that 3rd mortgage is really bazarre to me because its not out far enough for HELOC but seems a little to late for a purchase money loan.

Permalink Reply by Smitty on March 15, 2012 at 4:10pm

Harry, In California, I understand if it goes to FC they can't pursue..Is that correct?  BUT if they write it off after with 1099 forgiven, aren't taxes still a potential?

Uilani, I'm not an expert in California short sales by any means.  Harry knows what he is talking about.  California dances to their own beat. 

There are many more qualified people here from the CA area that can help, but from the little I know from CA Harry is dead on.

Permalink Reply by Harry Clay on March 15, 2012 at 7:34pm

Per C.A.R.:

The general rules governing deficiencies (in California) are as follows:

1. “One Action Rule”:  “There can be but one form of action for recovery of any debt or the enforcement of any right secured by a mortgage upon real property.”  (California Code Civil of Procedure (“CCP”) § 726(a)).
2. No deficiency judgment is allowed by the foreclosing lender following a non-judicial foreclosure (i.e., trustee's sale), regardless of the type of property foreclosed. (CCP § 580d).
3. No deficiency judgment is allowed when the type of loan is either (a) purchase money for an owner-occupied residential one-to-four unit dwelling (“owner-occupied purchase money”) or (b) seller financing (“seller carry-back”). (CCP § 580b).
4. No deficiency shall be owed nor a deficiency judgment rendered following a short sale on a residential one-to-four unit property. (CCP § 580e(a)).
5. A lender may not require the borrower as a condition to agreeing to a short sale to pay money other than from the proceeds of sale. (CCP § 580e(b)).