Judicial foreclosure on recourse loans in California?

[CH in CA]

This is my first time posting on this forum. My question is this: how often do lenders judicially foreclose on recourse loans in California? I have been researching and not finding much concrete information, other than it rarely happens. I'm not sure if this is old information, prior to the real estate downturn. I would think more lenders would be pursuing judicial foreclosures in this market if they think there is any chance the borrower will recover in the future, or perhaps has any assets. We have a first trust deed loan that was refinanced right after our purchase (for a lower interest rate). Now I know it is recourse. We need to move (my husband's income has been cut drastically) and the only way I can see getting out of this house is to walk away. We owe apx. $100,000 more than our house is worth. The thing I am worried about is we own another home in the same county (San Diego). This is the home we are hoping to return to since we bought that home 13 years ago and have a fairly low payment (it is a rental property now). Do you think the lender will choose in this case to foreclose judicially instead of non-judicially since they will see that we own another home? Again, how often do lenders actually foreclose judicially in California against residential homeowners? I can't seem to find a single example of that happening. Thank you for whatever information you can provide to me.

[The Professor]

I have suggested a number of times on this forum that lender's simply do not follow a judicial foreclosure path in California on residential real property, not so much because they wouldn't want to improve their "underwater" position by forcing the borrower to contribute some of their assets towards a shortfall. The primary reason is that judicial foreclosure brings about a post-foreclosure sale right of redemption, effectively rendering the property unmarketable for up to one year after the date of the foreclosure sale. With a non-judicial foreclosure, there is no post-sale right of redemption for the foreclosed borrower.

Daniel

[CH in CA]

So, is it pretty safe to say that one can be reasonably certain that even with a recourse loan and assets, the lender will still choose to foreclose non-judicially in California? Our only asset is our other home, which we would like to return to. Has anyone actually heard of a single case of a homeowner being foreclosed on judicially and receiving a deficiency judgment against them? Our lender is Amtrust Bank. It seems that perhaps the one year right of redemption might be less of a concern now since some lenders are taking their time putting these homes back on the market and sometimes they are sitting for quite a while before being sold.

[maxx233]

Originally Posted by CH in CA

Has anyone actually heard of a single case of a homeowner being foreclosed on judicially and receiving a deficiency judgment against them?

I've been wondering the same because my loan is recourse as well (although I don't have any other significant assets.) I've been reading a fair bit this last month, and honestly I haven't run across a judicial foreclosure yet. I'm not discounting it entirely but the concensus from this site, other sites, and even the media, is that it simply doesn't happen. Some RE agents, and most attorneys will claim it happens to varying degrees, but they seem to be the only ones who think so. I've never read a single first or second hand account though! I've even tried googling it several times with phrases you might find posted in a forum, like, "just received lis pendens from lender"/"Lender is seeking judicial foreclosure", etc... and I've never turned anything up. I would *assume* that it if it happens much at all then people would be freaking out about it on the interwebs the same way we're all freaking out about foreclosure - and therefore I should be able to find accounts.

Now, I'd love to just assume it'll never happen, but I had to have a plan if it did. My plan is, frankly, a possibly prolonged game of chicken. I've stopped making the payments and am just waiting to see if they sue me instead of the easy non judicial foreclosure. If they do, I can either bail at that point and take my cash-stash(which I have because I haven't been paying the mortgage) to reinstate the loan. If I do that I'll almost definitely stop making payments *again* in hopes I'll get luckier the secord or third time (maybe a different person will review the loan and decide not to take it the judicial path.) OR instead of restarting the game of chicken I can continue with it and continue to claim I can't make payments, threaten to file BK, and offer deed in lieu while they continue to rack up legal costs in their judicial case. If they take DiL, great, it's settled. If they don't, I file BK. That stops everything as I understand it, and washes that debt away without possibility of deficiency (or removes it if it's already there.. I think.) And, in BK, you can elect to keep the house that you want to keep (or any other debts for that matter, as long as you can afford to continue making the monthly payments.)

Feel free to copy/modify my plan to suit you, just be sure you do your own research as your situation is a bit different, and you have more to lose. Also, talk to an attorney for sure! It really is helpful, I'm still looking for one to actually retain, but even the free consultations can be helpful.

[CH in CA]

Thank you for your information! I have been "researching" like crazy trying to find any evidence of judicial foreclosures and can't find anything. I scour the lis pendens recordings at the San Diego County Recorder, check out several financial papers for public notices of civil summons, check out the website for San Diego Civil Court Cases and can't find a single thing. But like you, I can't just dismiss the idea since it certainly is a possibility that would be really awful. Thank you for your plan! I will consider it when/if we decided to take the walk. Good luck to you in your situation. What state do you live in?

[maxx233]

Im in CA too, my loan is recourse though because it's a refi like yours. I've got a thread somewhere ohn here with my whole story. I sould be getting a notice of default (or a lis pendens!) early next month, once I get that I'll be updating my thread, I just haven't had any news to report on it lately other than much less stress

[CH in CA]

I understand in California it is extremely rare for a lender to foreclose on a residential property judicially, even on a recourse loan. I am curious as to whether anyone in California has had a lender even threaten to foreclose judicially instead of non-judicially as a means of trying to get the borrower to make payments? Is it something that is even discussed or used as a threat? Has anyone had their lender say they will refer their case to an attorney for judicial foreclosure, as opposed to a trustee for a non-judicial foreclosure? The feeling I'm getting is that it isn't even something the lenders consider here in California. I hope I am right as I have a recourse first! My lender is in Ohio (Amtrust Bank), which is a recourse state. I'm wondering if they would be more apt to consider a judicial foreclosure since they are used to that type of foreclosure in the state of Ohio. Anyway, I'm just trying to get a sense of the odds my lender may choose to foreclose judicially, and if they would use it as a threat to get me to pay.

[ocdreamer]

I'm curious about this subject as well. I tried researching foreclosures on my county court website but honestly, I really don't know what I'm looking for. I typed in the names of banks (Bank of America, Washington Mutual, Chase) and narrowed the action to "foreclosure" and found maybe 5 examples over the last 7-10 years. Of those, 3 or 4 had other issues going on, such as multiple banks as plantiff AND defendant, etc...

Is this right?

On an unrelated note, there are TONS of unlawful detainer (eviction) filings from banks.

Any guidance would be helpful, thanks!

[CH in CA]

Yes, I agree that it is difficult to research on your own. I have asked a few different attorneys as well, and they agree that Judicial foreclosures for residential properties are just not done in California for various reasons.

[ocdreamer]

Originally Posted by CH in CA

Yes, I agree that it is difficult to research on your own. I have asked a few different attorneys as well, and they agree that Judicial foreclosures for residential properties are just not done in California for various reasons.

I just wanted to see it for myself, seeing the line that it's "rarely" done doesn't do it for me. I think I've been researching it correctly, the only time BofA or Wamu show up in the court filings are for evictions or "other real property" (no idea what that means).

I just redid my search, the last time Wamu shows up in the court cases database for a "foreclosure" was back in 2002 (Orange County Superior Court Case #02CC06043), even then, there was a motion to dismiss w/out prejudice a month after it was filed. Also, there were about 5 different defendants, the NOD was filed 3/22, and this lawsuit was filed on 4/23...I doubt this is a residential foreclosure, but I'm not entirely sure.

I use this site https://ocapps.occourts.org/CivilPubv2/Login.do
and for good measure i'll run the names here
Grantor / Grantee Search - Index Page: with the appropriate dates

[CH in CA]

Oh my gosh! You sound just like me! I search the grantor/grantee index like crazy (san diego has a really good one!). I also run the names of banks under the Superior Court cases. I am curious what "other real property" means as well. I thought that foreclosure was listed under that, amongst other types of lawsuits dealing with real property. I, like you too, find it hard to accept that it won't happen to me...I'm sure I will be made the "example" somehow. We do have assets, another home, and my husband is still employed, so that is what is keeping me up at night. Ours isn't a dire harship, but the market value has dropped way below our loan, and I am tired of making this ridiculous payment. We have an IO loan that will eventually kick our butt, so we want out now before things get ugly Is your loan recourse as well?

[NV702]

Im in Nevada but I have been searching the court records as well. I found houses that have been foreclosed on, looked up the previous owner and looked for all cases that have been filed in their name. So far nothing. I mean some had cases but not from a lender. I have found some cases regarding Countrywide but they were the defendant. Even people walking out on million dollar homes were not pursued in court. Who knows what gonna happen. You just have to prepare for the worst.

[ocdreamer]

Originally Posted by CH in CA

Oh my gosh! You sound just like me! I search the grantor/grantee index like crazy (san diego has a really good one!). I also run the names of banks under the Superior Court cases. I am curious what "other real property" means as well. I thought that foreclosure was listed under that, amongst other types of lawsuits dealing with real property. I, like you too, find it hard to accept that it won't happen to me...I'm sure I will be made the "example" somehow. We do have assets, another home, and my husband is still employed, so that is what is keeping me up at night. Ours isn't a dire harship, but the market value has dropped way below our loan, and I am tired of making this ridiculous payment. We have an IO loan that will eventually kick our butt, so we want out now before things get ugly Is your loan recourse as well?

Haha, it appears as though I've met my twin! My case is also not a total hardship walk away (my respect to those that truly are in that situation), it's more of a financial "makes total sense" thing. It actually belongs to my parents (I'm the grown son writing about it-- but our finances are tied together so what is good for them is good for me and my wife).

What I also worry about is them coming after the primary home and other assets, this is a 2nd home so I do not believe it goes under the 580d (or was it b?) non-recourse provision (ie looks like we're recourse!). It just seems too good, so we're worried as well.

And yes, San Diego has the better grantor/grantee search function...it provides quite a bit more detail. I even searched there + the superior court website. My wife (who's from SD) had a field day looking up everyone she knew when we discovered it.

I'll keep you updated on anything I find. There was one case in SD (i'll try finding it again) from 2008 or so, but it appears there were other issues involved.

[innospouse]

Count me (us) in, too! My wife has "safely" excuted 3 short sales against recourse loans so far (that is, short sales were executed with "full satisfaction" agreements from the lenders - 1099s received (well, the one for this year is expected). She has two more properties and wants to SS one - Countrywide (now BOA) is the lender, just uses the phrase "will accept payment..." in their approval letter, and they specifically reserve the right to seek the DJ. And we all know they're among the hardest lenders to deal with in the 1st place.

The RE agent she's dealing with, who successfully executed the prior short sales for her, acknowledges that CW is the most difficult to deal with, but insists the SS can be executed, and advises that other CW shortsellers have been 1099d.

Like you, I keep seeing that DJs on residential properties are rare or non-existent in CA. I've seen this commented on to the extent that some wonder why anyone would even THINK about continuing to make payments on upside-down mortgages in CA, the non-judicial approach being so automatic among lenders. It's not hard to find discussions of the rationale for this either. But I just haven't seen the "it-never-happens" from a source one could consider authoritative. Now I suspect that no lawyer in an on-the-record consult or any formal venue is going to advise a client or state openly that they never happen, even if that's the case. But I'll be darned if I can find any evidence whatsoever of them occuring. You wouldn't think it WOULD be so if they were currently taking place. The meltdown has been going long enough now that some of them would've hit the courts by now.

The strategy for just stopping payment sounds flawed to me. Yes, one could just reverse the process and cure the loan once it goes judicial (if it ever does), but by then I would think the "cure" would include a mountain of legal fees and penalties well well beyond just the missed payments.

[dulcinea]

California is a one action state...definition below:

Everything I have read states that unless you have significant assets the lender will foreclose and do a trustee sale as it is cheaper and easier. In CA you technically don't have a mortgage you have a deed in trust so the trustee handles everything for the lenders.

One Action States
In some states, lenders are only permitted a single lawsuit to collect mortgage debt. This plays out differently depending on the state’s laws. In New York, for example, a lender must choose between the actions of foreclosing on the property or suing to collect the debt. The following states have some type of one action statute:

California
Idaho
Montana
Nevada
New York
Utah

[innospouse]

Agreed - and understand the one action principal. The question is: how sure can we be that CW will not sue for the deficiency if we go forward with a short sale, or go the judicial (rather than the non-judicial) route if we just let it go to foreclosure? Have come across no evidence of lenders taking action on the deficiency in CA so far.

What does "significant assets" mean exactly?

[myjohnso2000]

hi are there any updates to any of you who went into foreclosure on your recourse loans? i see that some months have passed since the last update, so i was just curious how things are going.

i'm considering going into foreclosure on both my recourse loans, but am very scared of the bank (both loans thru GMAC) declaring a deficiency judgment against me.

[KT in CA]

We are in foreclosure on our first recourse loan. We also have a recourse second with the same lender as our first. It looks like everything is heading towards a trustee sale date in mid-August. Our loan docs have a Power of Sale clause (I think that's what it's called), where it states that if we go into default our lender will take the house and sell it at public auction. I think you will see defeciency judgements in business situations, where there is money to go after. For must of us, we don't have any money and that's why we are letting go of our houses. They can come after us but there is nothing to get.

[innospouse]

We did not proceed with the short-sale due to lender's unwillingness to forego their deficiency judgement option, and haven't yet defaulted on the loan(s). If/when it gets to that, we'll more than likely just default and let them foreclose and go ahead with the trustee sale. (yes, we're assuming they won't bother with a judicial foreclosure) 'Actually more protection that way than the short-sale alternative.

[myjohnso2000]

Hi Everyone,

Any new updates on anyone else who are defaulting on their recourse loans?

Both my loans are recourse loans and were with the same lender up until this month when my 2nd got transferred to another company called Specialized Loan Servicing, LLC. My first has been in default for 2 months but through some mistake on the lender side, they continued to withdrawl money from my bank so my second will not be starting the default until next month.

I just received a letter from my lender (i've been in default now for 2 months on the first mortgage) saying that they may use an atty for the foreclosure...this scares me as it just screams judiciary to me. Just wondering if anyone can give me any insight or words that will help ease the sick feeling I have in my stomach.

[KT in CA]

We have first and second with same lender. Both are recourse. Just received my Notice of Trustee Sale with an October 13 sale date. I'm still getting bills from the lender to pay our second. Curious what will happen with this after the property forecloses. I'm hoping I can go the route that they wiped out their own second with foreclosure and be rid of the second. I just want the sale date to come so it can be over with. No deficiency, no PMI company coming after us. At least in California anyway since they have no greater rights than the lender. Just have 1099 to worry about. (I say just like that's a small thing...)

I think one of the letters we got early on mentioned something about an attorney as well being possibly used. But we got the trustee sale date letter last week. Unless you have a lot of money in the bank that they can come after, I highly doubt they will go judicial.

[myjohnso2000]

thank you so much for your update...could i request more updates as you progress?