California foreclosure second mortgage - can they come after you later?

Someone I will call Marsha emailed me a few days ago. She asked me:

  1. Richard, we got foreclosed on here in California. The second mortgage holder is now contacting us and telling us that we need to pay them for the second mortgage. I thought this was over. What gives? Do we have to pay on the second mortgage even after the foreclosure? I thought we had all this behind us, please help.
  2. And, we got a 1099c from the lender. Our accountant is advising us we may owe state income taxes here in California. What do you think we should do? HOw should we report the 1099c to California?

So Marsha, Richard here. I was away on family vacation out of the country and just got back yesterday, Friday, and the NY Times published a lengthy article including my website in it and the fan's been hit here. For information on the state you live in see states that are non-recourse but remember that it doesn't apply necessarily for a second mortgage.

Anyway, that's why I've been late in answering. Okay.CC attribution commercial sharealike http://www.flickr.com/photos/hamed/

Yes, the junior loan can come after you. They can go to court under a breach of contract claim just like a credit card company can. It's an unsecured debt at this point, but since you signed the note, it is fair game. You have the usual defenses to it but usually those aren't much so they can force the issue eventually by filing for a summary judgment motion, getting a judgment and then garnishing wages, levying on bank accounts, or whatever.

On the other hand, perhaps they will simply go away. You never know. This second mortgage situation is a huge deal. California is a "non recourse" state but that only applies to the first mortgage in most cases. As many people are finding out, just about everywhere under current conditions, borrowers can be held personally liable for second mortgages after foreclosure has happened on the first mortgage.

Now, as to the taxes matter. As I have written before, cancellation of debt income exists whenever a debt is reduced, written down or cancelled.

Whether you owe income tax on that income is another matter.

You do not owe income tax on a federal level if you meet one of three tests:

  1. This was your principal residence (up to $2 million of cancellation of debt income)
  2. You are technically insolvent at the time of the income (meaning your debts exceed your assets, which is normally the case when we end up in these situations, since all our mortgages are counted as debts in this calculation.)
  3. This is a non-recourse loan.

Okay, so that is federal taxes. But what of California taxes?

I really have no idea. However, not filing the 1099c may not be a good idea. There is a simple financial statement you can fill out showing your financial position at the time the debt was canceled and if it shows a negative net worth (technically you are insolvent) you meed the federal test #2 above and wouldn't owe taxes to the feds.

California usually follows federal laws in tax matters but not always. I can't give you advice because I am not a tax preparer and not qualified but if it were me, I would probably ask my accountant for my range of options and then follow the more aggressive option. But that's just me!

See Can a second mortgage holder sue you after foreclosure? for more.

And please watch my video on how to avoid foreclosure by doing a short sale even if you have a second mortgage foreclosure situation. The answers are here. I will never share your name or email with anyone.

And watch this video on short sales and foreclosures. This is a screen shot — just type in your email and I'll get you to the real video. Thank you.

Should you rent while in foreclosure

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58 Comments on California foreclosure second mortgage - can they come after you later?

Stephanie @ 2:56 pm:

I would like to see the video on short sales

Thanks!

Jason Blank @ 9:00 pm:

I have a similar question. Can the second come after you even it is with the same bank? It is a home equity line.

They certainly can. It makes no difference who services the loans. The second is probably owned by a different investor from the first. Even though the same lender is servicing both loans. And the second probably has no equity, and after a foreclosure or short sale, unless you get a written release of liablity from the second, you are still on the hook for their financial losses. This is a debt that you owe because you signed the note and there is no security, so it becomes unsecured like a credit card debt.

It is dischargable in bankruptcy, in general, this sort of debt. That puts some pressure on the second to deal with you and negotiate a fair settlement, such as partial payback over a number of years.

warmly

–Richard

Jason @ 9:07 pm:

Richard, I spoke with a lawyer regarding this. Of course he couldn't give me a straight answer, however he told me he has a article where a case back in 83' they couldn't come after you for a judgment when the loans are with the same company. He says if they come after me he would write a letter with this article. Does this lawyer know what he is talking about?

-Jason

Marcus @ 4:01 pm:

Hi Richard, I'm in a similar situation but the difference is that I was able to short sell my house successfully in 2008. Both my 1st and 2nd loans are from the same company and my house is in CA. I haven't received any 1099 forms from the lender. I contacted them and said that since this is in CA, this was a non recourse loan and they will not issue a 1099 for that matter. Does it mean that even my 2nd loan was a non recourse? Thanks.!

The second is recourse and they could still pursue the matter. So they probably haven't canceled the second, and there is still a debt out there, so no 1099. Congratulations on a successful short sale! California is more or less a non-recourse state, so that is probably a good call on their part.

warmly

–Richard

Solaris @ 3:56 pm:

If California is a non-recourse state, and a home is taken through a non-judicial foreclosure, why do banks still issue a 1099-A and 1099-C on it?

I know someone who was in that situation, and got a 1099-A and a 1099-C afterwards, and had to deal with claiming the 1099-C, even though it was a purchase-money mortgage and owner-occupied. They had relief from the Mortgage Debt Relief Act, but still, the bank should not have issued a 1099-C and they would not have to deal with any of that on their tax return, right?

Mortgage Broker @ 1:18 pm:

I think you are wrong Richard. Judgements cannot be obtained against purchase money mortgages in California; 1st or 2nd mortgages. Regardless of whether they're recourse or non-recourse. This is according to the California Code of Civil Procedure 580b. See exerpt and link below. Therefore it's rather silly that the 2nd mortgagor won't issue a 1099-C, since they cannot collect on the balance through the courts. I guess they're hoping that the inconvenience of having an outstanding balance or possible collection account on your credit, might be motivation enough for you to come to some settlement with them. Most credit card companies sell your account to collection agencies after four months of non-payment. The fact that your mortgage hasn't been bought by a collection agency is an indicator of the value of your defaulted mortgage; which is close to nothing! Collection agencies aren't buying California purchase money mortgages, because their collection rights are so limited. Please disprove me Richard. California Code of Civil Procedure 580b. "No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser." See http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=17953912935+4+0+0&WAISaction=retrieve

 

No I am correct.

Here's how it is. The second doesn't foreclose. There is no deficiency judgment, just as the law says.

Yes, the second gets wiped out. But you STILL signed a note. And if they haven't foreclosed they can come after you in civil court as a breach of contract complaint. They could actually do that with a first mortgage, but the security is still present so they can't. But for a second with no security, they get wiped out and then come after homeowners as a simple unsecured breach of contract basis. And it is happening quite a lot now.

warmly

–Richard

J R @ 12:12 pm:

Received a 1099A for 2008, but no 1099C. How do I treat the 1099A for tax purposes in California. Thanks.

Donna @ 9:44 am:

We received a 1099A for both the 1st and the 2nd on our home that was forcloused on in March 08. They sold our home for 1/2 of what we owed. Now the secondary bank has hired a collection agency to collect the second for them. Is this legal? Can they come after us for that money they 1099A us on?

Andrew @ 10:30 pm:

My parents foreclosed on a $350,000 loan with the main bank (chase) but they also have a second mortgage with Ocwen for $60,000 which is a 15 year baloon loan ( this house is in California). Now, from what I am getting the second bank can first hire a collection agency and then this collection agency will hire a law firm who can sue them for a breach of contract. My mom is not on that second or first mortgage. The loan does not show on her credit but for some reason they are sending letters to her too. She is on the deed of trust. I don't know how that makes sense. My parents do have a second house in both of their names with $3500 mo mortgage. My mom is self-employed and does her business from there (it is a homecare for the elderly). What should they expect?. I am willing to help them but I don't know how. I am trying to think of a way to secure the bussiness and its income. I was thinking to maybe incorporate it in a limited partnership with me getting most of the income so that in case my mom is sued, the business income will be safe. It seems very complicated since the business cannot be sold to me or anyone else because it is based on a license that is non-transferable. I will try to get them to consult a lawyer but they are very stuborn.

Gary @ 2:59 pm:

Hi Richard –
In the June 16, 2009 comment you say:

“[In California], Yes, the second gets wiped out. But you STILL signed a note…for a second with no security, they get wiped out and then come after homeowners as a simple unsecured breach of contract basis. And it is happening quite a lot now.

Can you cite any case law where this has occurred? or any articles citing real life situations? I agree with the user’s comment and think you are still wrong Richard.

Cal Code Civ Proc § 580b protects the mortgagee from a deficiency judgment regarding any purchase-money mortgage, even if it is rendered valueless by a senior foreclosure sale. Below is a list of relevant case law supporting my claim. It is from a Lexus Nexus search for case law involving 580b.

Highlights before you read the excerpts from Lexus Nexus below:
1. “580b applies to a junior lienor whose security has been rendered valueless”
2. “An action…secured by a second deed of trust after sale under a first…has wholly exhausted the security is not to recover a deficiency judgment.
3. “One taking a purchase money trust deed knows the value of his security and assumes the risk that it may become inadequate, especially where he takes a second purchase money trust deed.”
4. “holder of a…second purchase money trust deed may not recover even though the second trust deed had become worthless”
5. “One who hold second deed…of purchase price of real property is precluded from recovering deficiency judgement…though his security has been exhauses by senior lien.”

1. CCP § 580b applies to a junior lienor whose security has been rendered valueless by foreclosure of a senior encumbrance. A two-part test determines whether CCP § 580b applies. First, the court must decide whether the secured loan is a standard purchase money transaction to which CCP § 580b automatically applies. If it is not, then the court must analyze the factual setting of the transaction to determine whether the transaction comes within the purposes of CCP § 580b. Two factors are important as to whether a transaction is a variation, or standard: the subordination of the senior lien to a construction loan, and a plan to put the property to a different, improved use. Crookall v. Davis,Punelli, Keathley & Willard (1998, Cal App 2d Dist) 65 Cal App 4th 1048, 77 Cal Rptr 2d 250, 1998 Cal App LEXIS 672, review denied (1998, Cal) 1998 Cal LEXIS 7336.

2. An action upon a note secured by a second deed of trust after a sale under a first deed of trust has wholly exhausted the security is not to recover a deficiency judgment within this section. Hillen v. Soule (1935, Cal App) 7 Cal App 2d 45, 45 P2d 349, 1935 Cal App LEXIS 522.

3. One taking a purchase money trust deed knows the value of his security and assumes the risk that it may become inadequate, especially where he takes a second purchase money trust deed, and he is precluded by this section from bringing an action on the note after the security has become valueless because of sale of the security under first purchase money trust deed. Brown v. Jensen (1953) 41 Cal 2d 193, 259 P2d 425, 1953 Cal LEXIS 263, cert den (1954) 347 US 905, 74 S Ct 430, 98 L Ed 1064, 1954 US LEXIS 2470.

4. Under Code Civ Proc, § 580b, the holder of a note secured by a second purchase money trust deed may not recover even though the second trust deed had become worthless by reason of a sale conducted under the senior first deed of trust. Barash v. Wood (1969, Cal App 2d Dist) 3 Cal App 3d 248, 83 Cal Rptr 153, 1969 Cal App LEXIS 1377.

5. One who holds second deed to secure balance of purchase price of real property is precluded from recovering deficiency judgment on notes given for balance, though his security has been exhausted by senior lien, and this is true whether first trust deed was given for purchase money or construction money. Lucky Invest., Inc. v. Adams (1960, Cal App 3d Dist) 183 Cal App 2d 462, 7 Cal Rptr 57, 1960 Cal App LEXIS 1773.

6. CCP § 580b prevents a junior lienholder from recovering a deficiency judgment after the senior lienholder had foreclosed on the property, leaving the junior lienholder with no recovery. Prestige Ltd. Pshp. v. East Bay Car Wash Partners (In re Prestige Partnership) (2000, 9th Cir Cal) 234 F3d 1108, 2000 US App LEXIS 29713.

7. That portion of Code Civ. Proc., § 580b, which reads, "No deficiency judgment shall lie in any event after any sale of real property … under a deed of trust, or mortgage, given to the vendor to secure payment of the balance of the purchase price of real property …," operates so that, under a purchase money debt owed to a vendor and secured by the property purchased, the security alone can be looked to for the recovery of the debt in the event of a default in payment. This rule holds true when the debt in question is a second deed of trust and the property has been foreclosed upon by the senior lienholder, leaving the security exhausted. Shepherd v. Robinson (1981, Cal App 1st Dist) 128 Cal App 3d 615, 180 Cal Rptr 342, 1981 Cal App LEXIS 2546, overruled DeBerard Properties, Ltd. v. Lim (1999) 20 Cal 4th 659, 85 Cal Rptr 2d 292, 976 P2d 843, 1999 Cal LEXIS 3340.

Flex @ 11:55 pm:

Hi Richard,
So recently I was informed that my 2nd is foreclosing on my first loan that are both with the same bank (Wachovia/BofA). Since I'm in CA and they have the 1 action rule and the 2nd is foreclosing on the first (paying them out) I will only be stuck with the 1099 A or C correct?

The 2nd cannot sue me and the first will be paid off?
Thanks

Carol Torres @ 11:28 pm:

I live in CA. I foreclosed on my house 2 years ago. I tried to short sale but Washington Mutual would not accept any bids. I went through HUD, they tried to help me. As soon as it foreclosed another real estate company bought it. The 2nd never was put in the loop. For 2 years they send me a bill every month and call daily. I told them I will not be pressured into a personal loan of any kind, because it is contrary to the intent of the law in a Trust Deed State. CA is a Trust Deed State. They still send a bill every month, but only call about 4x a month. Can they go after me? Am I liable for the debt still after 2 years?

TD @ 7:05 pm:

My house was up/down since sept-2008 still present (Oct-2009), and I stop make an payment from that day to now….Me and my wife planning to do walk away
My loan is 1st and 2nd, both are same lender (Primary home), my question is:

1. Short sale or walk-away ?
2. They after us either short sale or walk-away?

mike @ 4:39 pm:

I'm going through foreclosure and have an attorney. We have a 80/20 on the home. My attorney advised me If the first and second lien were concieved at the same time with the same lender and are for the purpose of buying the house the junior lender has no recourse no matter what. They can try to sue but they won't win. This is of course if you never refinanced. If you have refinanced then you have problems with your second lender because they can come after you.

Julia @ 4:02 pm:

I understand that technically if you refinanced, and later went into foreclosure without satisfying your second lienholder, then your second holder can come after you for breach of contract under California law (maybe), but has anyone here or does anyone know anyone who has actually had a bank file such a lawsuit against them?

I just hear of a lot of "threats" of this and collection agents coming knocking but I don't know of any actual lawsuit brought. I think this is because a) it is expensive for them to bring such a lawsuit and b) they are afraid that if this does actually go to court-an activist CA judge may extend the protections CCP 580 to all purchase money lienholders, regardless of whether the loan was refinanced.

Any thoughts on my theory?

crush @ 12:19 am:

my condo in long beach California just sold at auction for 154. i had a first of 267k, a second of 67k. both loans were used to buy the condo in 2005, i never refinanced either of the loans.

so i guess i don't know where i stand - what's all the talk about purchase money rule? why can a second come after you?

Kate @ 4:35 pm:

For Mike on Nov 9th, 2009. I have a question for you:

Do you know if your 2nd lienholder was saying that you owe Secured or Unsecured Debt?

I have the same situation and I've gotten the same advice that you have. But the more and more research that I do, I am running into more yesses and nos on the matter. My 2nd lienholder is claiming that it is an Unsecured Debt and they can in fact collect. To my understanding, a Secured Debt cannot just turn into an Unsecured Debt just because the security is gone. If the security is gone, that's it. I could be wrong on this but havent talked to enough of the right people. Please help!

Susan @ 12:08 am:

We live in CA - we refinanced our original mtg in 2005 and paid off the 2nd with the $$ from the refinance. So, we currently only have one loan. It is a Deed of Trust, purchase money. We want to walk away, do we still have non recourse protection? Home is worth less than 1/2 of value, and we are close to retirement, we need to cut losses since we will eventually lose this home.

Josh @ 10:08 am:

I walked away because I couldn't afford my payments. I refinanced and owe about 75k on the second. It has been a year now that my house has been in foreclosure. I tried to short sale but freddie mac wanted more money, so after it foreclosed they got 20k less. So they messed up! Laywers told me that the bank won't spend 20k and get nothing, because I would file for chapter 7 or 13 if they did. Also I belive there is a 3 or 4 year statute of limitations they can come after you. Tell them that if they try calling you after that time, because if you don't and make a payment the statute of limitations start all over again.

Russ @ 10:05 pm:

I have my 1st with Chase of $315K, and my 2nd with Wells Fargo of $100K. I'm in CA, and both were used for purchase money, and it is my understanding that both are non-recourse and non-secured (secured only on the property). The value of the house is now $275, so less than the value of the 1st mortgage alone. I've stopped making payments to the 2nd and am current on the 1st. The 2nd will have two options:

1) Come out of pocket $40K to pay off the 1st, and then the cost of foreclosure. In this case they lose much more than just walking away.

2) Settle with me for about 10% of the cost of the loan ($10K or so), which I am hoping. In this case they walk away with some money.

Has anyone done this? Of course Wells Fargo is making all kind of threats, but I know my rights and they know they are screwed. I am curious if I will in fact be able to stay in my home…and of course if there is in fact no recourse that the 2nd can have. Any comments?

KT @ 2:09 pm:

For those of you in California with recourse loans with the same lender, THE LENDER CANNOT COME AFTER YOU FOR THEIR SECOND WHEN THEY FORECLOSE ON THEIR OWN FIRST. We were in that situation with 2 loans, both same lender, both taken at same time. They were recourse because they were refinances and we took cash out. I did my research. LOTS of it. And then I was pointed to a court case that makes it pretty clear.

In Simon v. Superior Court, 4 Cal.App.4th 63 (1992), a bank gave two separate, sequential loans to a debtor. The first loan was secured by a first deed of trust on the debtor's personal residence. The second loan was secured by a second deed of trust on the same property. Neither loan was purchase money (these loans were recourse). After default, the bank non-judicially foreclosured the first, credit bidding less than the amount due, and then sued the debtor for $375,000 on the second note. The court barred the bank from recovery on the second note, holding that it amounted to a deficiency barred by 580d.

It has to be the same lender up to and through the foreclosure. Our second was transferred two months after our foreclosure took place. When that happened our attorney contacted the new lender. They said they were aware of the law and that they would not be pursuing collection efforts. So don't let anyone tell you any different. They can send you a 1099 for what you didn't pay though, just like the first lender will send you a 1099 for a deficiency.

Kate - your second was given to you using the home as security against the loan. As long as that security is there, the banks allow you to continue paying the loan in payments. Once you default on that security and some other entity owns the property they no longer have any legal rights to it. That loan they gave you becomes "unsecured" whereas before it was secured by the home. So yep, they will now expect you to pay.

Marie @ 12:20 am:

We are in California. In 2006 we purchased our home for $407k, but it appraised for $465k. Within 30 days of purchase we refinanced so the loan would be 80/20 to avoid pmi, plus we took out 7k. Bank was IndyMac for both. After IndyMac became a division of OneWest Bank last year, they "discharged" the loan to Green Tree Servicing (US Bank National Association). Does anyone know if us doing the immediate refinance and the Green Tree Servicing will affect Green Tree being able to come after us if we foreclose??

How will pay a lawyer help us through this? We saw a lawyer today for our "free" consultation, but he only consulted us on his prices and didn't give us any clarification. We are willing to pay him for services, but I feel we were duped to get into his office. Can someone please point us in the right direction?? Thank you so much!!

Marie @ 12:23 am:

I forgot to mention above, when we refinanced right after the purchase, we ended up with a 1st and 2nd. fthe 1st at about $400k and the 2nd at about $45k. Just to clarify. Thanks.

Debbie @ 2:20 pm:

I really need help. I live in CA and my home was foreclosed on Sept 2007. The 1st loan w/ Ocwen was for 547,000 & it was covered in the foreclosure. However, the 2nd loan w/ Ocwen for 136,000 was not included in the foreclosure. I do not understand why Ocwen continues to bill me for the 2nd loan considering that it was a "purchase money" loan so the non-recourse laws should apply to it. What should I do? Is this 2nd loan going to be on my credit forever? Should I file bankruptcy or what?…

Tom @ 2:30 pm:

I'm in the EXACT same boat. Ocwen had the 1st and 2nd. They foreclosed after refusing to do a short sale my realtor came up with. The first was taken care of in the sale. I called them today and they acted like I still owed them for the 2nd. I don't know how this is going to play out but let me know if you learn anything.

Ike Eiler @ 8:29 pm:

The value of my home is right around what the 1st is 121,000. my 2nd is 55,500. I live in California in the lower Desert of Riverside County ( Very Depressed with high unemploynment. Both of these loans are with the same lender and were taken out as refinanced loans…here is my question, what would happen if I just stopped paying the 2nd note and stayed current on the 1st. Why would the 2nd forclose when there is no Equity for them.

KT @ 1:03 pm:

For those of you in California with recourse first and second loans with same lender at the time of your foreclosure, see my post here from Jan 28. Also, if you have purchase money first and second loans, they can't come after you for those either, as long as they are purchase money and are non-recourse. The second you refi and take cash out that is a game changer and they are recourse. If you mortgage papers contain a Power of Sale clause they will follow the one action rule and take your home and not pursue a deficiency judgment. If it doesn't have that clause, that is when you see judicial foreclosures. Haven't heard of judicial foreclosure in CA yet, and I know a lot of people who are going through this.

Debbie, send them a letter informing them of CCP 580b and tell them to leave you alone. Or contact an attorney and have them do it for you.

Tom, if you are in CA, you do the same thing as Debbie. But you don't say if yours is purchase money or not. If yours are purchase money loans 580b will apply. If yours are not purchase money loans and were with same lender at time of foreclosure, then SImon attaches and they can't pursue you for the second.

You guys will have to be proactive. Don't expect the lender to just leave you alone. If they think they can intimidate and scare you into paying for that second they will. From the info you two have given it sounds like they don't have a legal leg to stand on.

ginalately @ 2:58 pm:

i have a 54k 2nd with chase which is 5mo. late and chase has sent me a letter of intent to foreclose, I have a 187k 1st with bank of america which i am current on. I filed for bankruptcy in 2008 and rec. a discharge in 12/2008. I never reaffirmed with either loan. Does bofa have to follow suit if the 2nd with chase forecloses. Even though i am current with BOFA. There is no equity in my house. zillow estimates my home is worth 165k however home down the street sold for 95k. Does bofa have to follow suit to protect thier interest?.By the way I want to keep my home. what do i do?

lady32 @ 5:06 pm:

TO; KT

So you're basically saying that if the second loan was part of the initial purchase they can't come after you, after foreclosure?

lady32 @ 5:07 pm:

Adding to previous question:

I also live in California. Just lost my house, bank did not accept any of the offers both loans were from chase.

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MW @ 5:57 pm:

KT
We lost our home last year to foreclose. We had an 80/20 loan, both to the same bank. We refinanced once, but only to lock in a lower rate. We received a 1099 on the first loan, and a collections agency is after us for the second loan. Both loans were owned by the same bank. By look at your posts I am thinking that we are in the clear and owe nothing. We feel that we should be taxed for income and never received. Is this true?

Matt @ 1:03 pm:

My home is currently valued at 375K. I have a 465k First Mortgage currently being serviced by BofA. This mortgage was originally with lender "A", I refinanced it with NO! cash out with Counrtywide to get a batter rate. I have a second mortgage, 180K, also being serviced by BofA. The second was refinanced with cash out twice over the years to assist in paying my mortgage payments. I have upcoming sale date and they refuse to modify. A BK is not really an option at this point. Should I expect to pay for the second after foreclosure and what happens to the balance owed on the first? How long do they have to file a law suite and garnish my wages?

Matt @ 1:03 pm:

And I live in CA.

Jason @ 4:46 pm:

Hi KT. Can I have your lawyer's info?

Inia @ 5:33 pm:

had short sale in 7/2009 in california, got a 1099c for the 1st loan but not on the 2nd. both loans were with WAMU now Chase. both loans were original purchase money - we never took money out of the 2nd since we never had equity on this property. in the short sale, there was no promissory note on the balance of the 2nd but the bank inserted a clause " reserves the right to pursue the remaining balance of the 2nd loan. . . " which i dont remember seeing. i dont remember to this day that my realtor showed me this approval letter until now when the collection agency keep calling me. am i protected by s580b? my sons were co-borrowers to both loans, can collection go after them too ? if i file for BK, will collector go after my sons, or the BK will discharge the 2nd loan?

appreciate your reply. thanks

cammy summers @ 5:56 pm:

"Original Purchase Money" - In California - i have read about the 2nd Mortgage but there is also what is called the Original Purchase Money versus a new refinanced loan. My question, can the leinholder who refinanced the Original Loan (the refinancier) come after you after the foreclosure, or will they look to look for other property to satisfy this refinanced home loan. There is no 2nd only refinanced debt. What is your experience or knowledge of this? Please advise as I have other property that could be subject to attachment if they go after other property. Please help i am desparate to find an answer since i might walk on my one property and start over but do not want it to affect another property almost paid off.

cammy summers @ 6:01 pm:

"Original Purchase Money" - In California , versus a refinanced loan which is no longer original purchase money. I have read about 2nd Mortgages, but this is refinanced debt on the home with no second mortgage. I have also heard that the lender of the refi can look to other property, but the original purchase money lender will not do this in California. please advise as i wish to walk potentially from my one property and i have other property potentially at risk. If this were the Original Purchase Money i would not worry at all, please advise on what you know. Urgent! i want to walk if it is safe, i guess i will see an attorney again. In the meantime what do you think or know?

Linda @ 11:50 pm:

What happens then if you stay current on 1st Mtg but default on 2nd. Will 2nd Mtg holder still try to foreclose if home is worth less than 1st Trust Deed?

g @ 11:45 am:

We had a home Foreclosed on by Chase after a long modification period that they reject base on a missing form. anyway. the Home was actioned off and then resold shortly afterwards. Checking the county records after the home was sold it appears US bank recorded a lein in our name for the exact amount of our second. the orinal second was serivced by Liton servicing and we be not think Chase informed them that the home was being forcloused on. How could this be how could the home be auctions and title change with out the second being cleared twice without the second being cleared also way would a we still be listed with a lien if not twice removed from the title.

Anna @ 4:19 pm:

We live in California and just did a short sale with our home. We had a 1st of $383,000 and a 2nd of $115,000 both with Chase. The second was a home equity line of credit and not used to purchase the home. Our home sold for $225,000 and in negotiations between the two departments of Chase the 2nd accepted $15,750 to release the lien on the property for it to sell. This money came out of the sale of the home and we thought we were done with the whole thing. After escrow closed and we no longer owned the home Chase sent a letter stating we had a 'deficiency balance" and were still liable for the $115,000. After conferring with a lawyer we found one line buried in the middle of all the documents stating we "may" be liable for this deficiency balance. Chase has now started harassing us with collection calls and we aren't sure what to do. Our Governor passed legislation October 1st making this "deficiency balance" practice illegal in the state of California but our escrow closed on September 24
making us ineligible. Lawyers are very sketchy and we would like to know what are rights are? We don't trust Chase and are afraid if we try to settle they will take us to the cleaners. Can anyone give us advice?

Simon K @ 4:29 pm:

Hi Richard,

I have a question related to my two houses that have the same bank lender.

I have 2 houses that are in California. One that was brought way before the market crash, and the other one was brought during the peak of the year 2008. And I got both of the loan from the same bank.

Since the one that I brought in 2008 are way under water right now, I am thinking about foreclosing it. But since my other house loan is under the same lender, can the bank do anything to my other loan? For example, can they foreclose my other house also? increase the interest rate on my other loan?

Thanks for your help!

Simon

jon @ 9:25 pm:

I have own a home and have a first mortgage that is current but the 2nd mortgage is in default can the 2nd mortgage foreclose on my property? I tried to negotiate for help w/ my 2nd and was told they are only willing to help if I refinance my first mortgage. I have tried several times but was declined because I was told I was not in harm in loosing my home. Any suggestions? I need help please.

Thuy @ 5:56 pm:

TEXAS - about 3 years ago I had to foreclose on an investment property in Dallas though I live in California, just like the others I had a second. Both were issued my Countrywide, now BofA. I was just served papers by a law firm representing a collections agency saying that I owe not only the balance, but interest, and legal fees. Do I have any options?

Dale @ 10:31 pm:

I absolutely agree with writer. I'm a attorney and like you, I have done research on this matter. The bottom line is this if at the time you used 2 loans (80/20 type of loan) to purchased your home. The money is considered "purchase money" as long as you never refinanced or took a HELOC loan, the lenders, whether it's one or two bank CAN NOT pursue the short seller for any deficiency. The lenders are out of luck.

Basically if you never refinanced or did anything with the loans (80/20) then don't have to worry about any deficiency judgments against you.

Richard, please consult with real estate attorney in California because you answers for this question is absolutely wrong and it is a disservice to the people who are asking for your advice.

Chris @ 11:21 pm:

Hi Richard…sorry, if this question is redundant.

I live in California and about a condo in 2005. It was a 80/20 loan with Chase on both. 1 Year later I look a HELOC to refinance the 2nd and pull money out. Again, with Chase. Chase recently foreclosed on the condo after not accepting a loan modification. Now, the 2nd at Chase is calling for payment of the HELOC loan. I read in one of the comments that if the lender is the same for both loan and they foreclosed on the property, then I am not obligated for the 2nd? Thank you.

Gail @ 2:35 pm:

I am disappointed to read this article. Richard, you are WRONG. Purchase money loans secured by the home itself ARE NOT RECOURSE. The second (or third or whoever) CANNOT come after the borrower if the loans are purchase money loans secured by a deed of trust. Breech of contract, my ass.

Please don't tell mr that you are a realtor who makes money off of short sales. I've met quite a few of them who scare borrowers with smoke-and-mirror tactics and frighten them enough to force them down the short sale route versus a straight forward foreclosure, just for the business!

Thanks.

Elia Bate @ 11:23 pm:

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Joni Dale @ 11:23 pm:

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Helen Peter @ 11:26 pm:

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Ron @ 3:21 pm:

why does the government allow such tactics to take place. surely there is something that be done about this kind of underhanded bussiness. If I make make a mistake, its me thats expected to pay for it and so rightly that is , but when the backs does so im still expeced to pay for and to the average joe struggling to have a home for his or her family we are the one's that end up paying the price, afterall the banks that lent all this money knew that this crash was comeing and traped people anyway.They get bailed out,,,, we dont.

John @ 9:00 pm:

Gary and Mortgage Broker are correct. However, the second loan must be purchase-money (meaning the second loan was taken out to purchase the house). In other words, if you took a second loan to buy a car or pay for a vacation, then you are still on the hook for the deficiency. Whether or not the second lien holder decides to sue/collect is a totally different issue.

ofelia @ 8:23 am:

my 1st and 2nd loans are both with Chase when i short sell my primary residence in california in 2009. the bank has been hounding me with my 2nd loan since the short sale which i didnt know had a condition of " bank reserves the right to pursue collection on balance of 2nd loan" . the last letter i got from the bank said they're giving me short window of opportunity to pay $7000+ (my 2nd was $57000!) or else my debt will be accelerated. 1) does anti-deficiency law protect me from deficiency, 2) what does debt acceleration mean and 3) what can the bank do if i dont pay up? this window is up to 7/24/2011. please help, this has been going on since my short sale.

Michael @ 11:53 am:

Very good question from my experience with a second mortgage it after foreclosing your first loan it ends turning into the same kind of unsecured debt as a credit card debt. Most companies will work with you though either by having you only pay a partial payment back over some years or dropping it altogether.

is Mrs Barbara Arnold @ 10:14 am:

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maria @ 6:37 am:

I live in california and my condo is in foreclosure, both my first and second loans are with bank of america, can they still come after me for my second? And if they do, what are my options, BK is not an option for me since I dont owe anything

CDSSB @ 4:28 pm:

My family lives in Downey, CA. We have a dog bite lawsuit that will settle soon, which will cost about 2 years of our current mortgage payments. We are considering letting go of our house to pay for this lawsuit since our house is now worth half of what we paid for. We have two mortgages when we purchased our house (which is our primary residence) from the same lender.

What should we expect from the lender as soon as we stop paying? Will the late fees from not paying also be included in the foreclosure? is the lender going to start calling our work?

Any response would be appreciated.

diana @ 12:30 pm:

i live in calif. i owned a condo in long beach.originally i had a 1st and 2nd for the purchase. i refinanced to bring down the payments, still with a 1st and 2nd. when the market crashed, my home devalued and the rates adjusted. since i was way upside down, i couldn't get refinanced for anything. unable to make the payments now, i stopped. and the 2nd mtg holder (gmac) was to sell the condo at auction yesterday. i owe 279,000 on the 1st and 32,000 on the 2nd, for a property that is worth 100,000 at best. tried to short sale for over a year, unsuccessfully. now what happens? with the 1st(aurora)? will the 2nd come after me? do they satisfy their loan with the sale and give the balance to the 1st? will my wages be garnished?can i file bk if they come after me?can anyone help me? how long does all this take?? thanks to anyone who can offer advice or steer me in the right direction….