before we walk...

[np2009]

Hello! Thank you everyone for the wealth of information
posted here! Today my wife and I have decided to walk
from our one bed room condo in CA. Here is our details:

1st loan: 259K purchase only secured on property
2nd loan: 64k purchase only secured on property
property value: Around 215K or so

we've never re-financed or anything. We've been living
here since the purchase in 06. My wife is not on any of the documents.
It just doesn't make business since to keep tossing the money away ..
Even though there is no hardship. we are deciding to walk and don't
want to live in our current place.

Our biggest concern is about the 2nd lender. Assuming the
1st lender forecloses -- the 2nd lender will have an unsecured loan
-- and try to get their 64k.

what we were thinking was somehow come up with the 64k,
and pay it out in one shot. We realize this is a big waste of money
-- but in the foreclosure scenario this would only leave us to deal with the 1st lender only right ?

Thank You so much...
-np

[knownick]

If you are in California and both loans were taken out at the time of purchase to finance a primary residence, then both loans should be considered non-recourse and you would not be liable for either of them under CCP 580(b). The second lender may try to collect from you but my understanding of the law is you should be protected and would not owe the balance.

A lawyer could look at your loan documents and tell you for sure.

At any rate I certainly wouldn't pay the second in full before foreclosure. After foreclosure these lenders are settling with people for pennies on the dollar - and that is on recourse loans where they could get a deficiency judgment for the full amount.

Good luck to you.

[HopingtoFind]

You're in CA... If your 2nd is non-recourse as you have described, since it was purchase money and you have never refinanced... lender cannot pursue you for deficiency. There is no reason for you to do anything with the 2nd according to what you described.

I would consult with a Real Estate attorney just to be sure.

[np2009]

HopingtoFind, knownick,

Certainly that is positive. Thank you both for your reply. But,
from the past posts Professor had mentioned that once the 1st
forecloses, the 2nd becomes unsecured and that the property
is taken by the 1st lender...leaving 2nd with nothing. Potentially
sending out the wolves after us...?

Thank You.
-np

[HopingtoFind]

Originally Posted by np2009

HopingtoFind, knownick,

Certainly that is positive. Thank you both for your reply. But,
from the past posts Professor had mentioned that once the 1st
forecloses, the 2nd becomes unsecured and that the property
is taken by the 1st lender...leaving 2nd with nothing. Potentially
sending out the wolves after us...?

Thank You.
-np

That is true... but the wolves can only get you if your loan is recourse. They have no right to pursue if your loan is non-recourse.

[Boneman]

I've never quite understood that... if these loans are "unsecured" -doesn't that mean what it implies? -that the lender has no secured right to the asset?

It's shocking to think that they can make a loan to you knowing that they are in a secondary position--- even acknowledge that they are making "an unsecured" loan to you, charging a higher or much higher interest rate because of all this--- then the moment the asset is taken back by the lender who provided funds secured by the asset itself- THEN- this secondary lender is able to call their loan up and contend that it is now suddenly (magically) secured by your other personal assets???

It seems ludicrous.

[np2009]

HopingtoFind,

hahaha. Thats this is good. I'll go ahead and try to get
some legal folks to check out the loan docs. But, I am looking
at the docs and both loans say that they are secured by the
property...its got power sale statement in both...and of course
never refi'd. 10.7% interest rate good lord... please take this
away...!

Thank You.
-np

[np2009]

Boneman,

I totally agree. This is the part that we are very worried about. I am just
afraid somehow the 2nd lender may come after us.

Thank You.
-np

[HopingtoFind]

Originally Posted by Boneman

I've never quite understood that... if these loans are "unsecured" -doesn't that mean what it implies? -that the lender has no secured right to the asset?

It's shocking to think that they can make a loan to you knowing that they are in a secondary position--- even acknowledge that they are making "an unsecured" loan to you, charging a higher or much higher interest rate because of all this--- then the moment the asset is taken back by the lender who provided funds secured by the asset itself- THEN- this secondary lender is able to call their loan up and contend that it is now suddenly (magically) secured by your other personal assets???

It seems ludicrous.

Well your credit cards are also unsecured but they still can pursue you and get a judgement and attach wages. Unsecured doesn't mean that you don't owe the money it just means there is no security (property, etc) behind the loan that they can take.

Also, it doesn't get suddenly secured to other personal assets, they still have to get a judgment in order to attach personal assets or wages.

[np2009]

HopingtoFind..

You have a good point. The part where "they still have to get a judgment in order to attach personal assets or wages" ..is a bit
sketchy. Are they doing this now a days ? I am assuming that if
you have other assets (homes ..etc) ..perhaps even a decent
job they may come after ya ?

Thank You.
-np

[knownick]

The key difference is that there is no law on the books in California protecting credit card debt as "non-recourse" - meaning the lender can pursue you in court for any deficiency that arises from your non-payment.

This is not the case for purchase money loans on a primary residence. In this case, the lender's sole recourse is to take back the property. If the property is worth less than the outstanding lien on it, that's their problem.

[Boneman]

knownick-- yes that is exactly my understanding.

We borrowed money to purchase a home. If we failed to make the payments as agreed, the lender would take the home from us (as agreed). End of story.

The second lender loaned money knowing full well that their money was at greater risk should the borrower default. Because of the higher risk they assumed, they charged a higher interest rate.

It is only in the case where the home values depreciate that the lender(s) face this peril. Had the homes maintained their value, or appreciated, both lenders would have been perfectly positioned to remain whole and even profit had the borrower defaulted on the loans.

Since the homes have depreciated, it has become a nightmare for all concerned, lender and borrower alike. But a deal is a deal, no?

The deal was--- they get the home back.

It seems like the banks are the ones saying -it's okay if all you little people lose---- but not us. We will take taxpayer money to cover our loses, then turn around and take a pound of flesh from those same taxpayers we just screwed over.

[HopingtoFind]

Originally Posted by np2009

HopingtoFind..

You have a good point. The part where "they still have to get a judgment in order to attach personal assets or wages" ..is a bit
sketchy. Are they doing this now a days ? I am assuming that if
you have other assets (homes ..etc) ..perhaps even a decent
job they may come after ya ?

Thank You.
-np

For recourse loans it is definitely a concern especially as you said one has assets and/or a decent job. Of course they can also wait a few years before doing anything to collect... every situation is different...

[np2009]

HopingtoFind..

See.. and that is one friggin' reason why paying off the 2nd lender made sense. We have no other assets literately zero in the bank
to pay the 2nd lender off. The only thing I have is a decent job --
until they do another round of layoffs ..never know whats gonna
happen. But so we would only deal with the 1st lender during the
foreclosure process if the 2nd lender is out of the picture right ?

Thank You.
-np

[HopingtoFind]

Originally Posted by np2009

HopingtoFind..

See.. and that is one friggin' reason why paying off the 2nd lender made sense. We have no other assets literately zero in the bank
to pay the 2nd lender off. The only thing I have is a decent job --
until they do another round of layoffs ..never know whats gonna
happen. But so we would only deal with the 1st lender during the
foreclosure process if the 2nd lender is out of the picture right ?

Thank You.
-np

You're protected if you have a non-recourse loan... they cannot pursue you for deficiency.

[np2009]

update:

Thank you everyone for the great information. So, we gonna try and do a short sale route. We actually actually got an offer as well! My question is -- are lenders making it difficult to do the shortsales? our lenders are
midland/gmac. 80/20.

Thank You.
-np