Short Sale - CA - Second Mortgage

[krk123]

Hi,
Could you guys please provide your valuable advice.

Here is my story.
Brought my house in California Jan 2007 : 480,000.00
Initial loan -1 : 380,000
initial loan:2 - 68,000.

Refinanced loan-2 in Sep 2007 to 90,000.00

Now I want to do a short sale as I am going to lose my job this month. I am current on my mortgage till date.

If I do a short-sale, since I am in CA, can the second lender pursue a deficiency judgement and go against my personal assests ?
thanks a lot.
Regards,
Krk123.

[CWandSLSat619]

I believe yes, The key term is Refinance... once the loan has been refied specially if you've taken cash out, then your loan is now considered as A Recourse Loan, thus subject to a deficiency judgement...

[faith]

Krk123
Hello and Peace be with you.
In California, if you have a Purchase Money Mortgage and never refinance there is an Anti Deficiency Judgment called California Section 580b meaning your lender can not pursue any deficiency judgment once the house forecloses or sold. If your home qualified as a principal residence and has purchase money mortgage then you do Short Sale, the balance owed called deficiency judgment is covered under CA Section 580b.

A deficiency judgment may be awarded to the mortgage issuer if the borrower fails to repay the entire mortgage when the home is sold. If the home’s value drops and the borrower cannot sell the property for at least the money due on the mortgage, a deficiency judgment serves as a court order to the borrower to repay the difference between the home’s sale price and the remainder on the mortgage.

State law in California protects you from recourse on your original loan, but what about your second mortgage or lines of credit? The cash-out refinance you may have done is also not protected from recourse. The potential for a deficiency judgment doesn’t just happen with a short sale however. It’s one of the risks of allowing the home to be foreclosed. If the home is auctioned for less than the bank’s interest in the property, the bank can also seek a deficiency judgment against the former homeowner for the remainder of the money due on the home. Likewise, the bank can seek recourse if the bank sells the property through a means other than auction, and does not recoup the money still owed on the home.

When you sell your house via Short Sale you need to list your home with a Real Estate Agent with experienced doing Short Sale. You need to price your house right in order to get a buyer, because without a buyer your lender will not approve the Short Sale. Go to zillow.com to get the recent homes sold in your area. Your house should be priced 85-90% of the fair market value.

The lender may approve the Short Sale but their insurance company called Private Mortgage Insurance will hassle you to sign a promissory note to pay the second . That’s when you negotiate to settle the 2^nd, offer to pay the second mortgage by paying 5 percent or 10 percent of the balance owed, say you owe $90,000, offer to pay 5 percent first, if they said no offer 10 percent which is $9,000 payable in 5 years and no interest. Get a letter stating that you have settled the second and there’s no deficiency judgment against you can be pursued after the Short Sale, and the credit report will show paid and settled less than full balance

In California, if you have a Purchase Money Mortgage and never refinance there is an Anti Deficiency Judgment called California Section 580b meaning your lender can not pursue any deficiency judgment once the house forecloses or sold. If your home qualified as a principal residence and has purchase money mortgage then if you do Short Sale, the balance owed called deficiency judgment is covered under CA Section 580b. Please click the link below it may give you an idea about deficiency judgment.

Deficiency Judgments After Foreclosure - Do Banks Really Sue For Them

God bless and take care