Impact of deficiency judgments in Calif.

distressed homeowners with deficiencyHere are two big pieces of the puzzle for distressed homeowners: deficiency judgments after a short sale, and the impact of foreclosures on deficiency judgments.

A deficiency judgment is an unsecured monetary judgment against a borrower whose sale of property, secured by a promissory note, is insufficient to cover payment of the loan note in full.

In a deficiency judgment, the seller would be found personally liable for the amount of debt remaining on a note after the sale of his or her home.

The good news is California is a “non-deficiency state.” That means that if you are foreclosed upon or your lender agrees to a short sale on a purchase money loan, the bank cannot sue you for the difference.

The case Simon v. Superior Court established a precedent barring deficiency following a non-judicial foreclosure.

Important note: This legal precedent only applies on purchase money loans from the same bank via first and second mortgages (if the second was used to purchase the home).

If you have refinanced or taken out a home equity line of credit, your loan is no longer considered a purchase money loan — therefore it could be subject to a deficiency judgment.

Banks are all about getting every dollar out of distressed sellers. Be prepared; know your options. You could face a lawsuit from your lender seeking to recover money that you don’t have.

Remember: The truth is banks don’t want to foreclose.

My philosophy is to escalate your file until it gets in the hands of bank executive who has the authority to waive any deficiency judgment activity by the lender after an agreement to sell your home for less than you owe.

My first and last priority is not just to negotiate your lien but your liability as well. If I don’t think you have a chance for a successful short sale without a resulting deficiency judgment, I won’t accept you as a client.

Why risk ending up with a deficiency judgment after a short sale? Let’s get you out of this mess with the bank.

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