I own a home in CA, secured with an FHA loan (fixed, 30-year) which is original (not refinanced) and it's underwater by about 20-30K. I recently had to move to WA for a new job, and bought a new house. I need to offload my CA house and want to know if the bank (Chase) can pursue me for a deficiency judgement if I foreclose. Alternatively, are there any benefits to short selling (it seems the credit hit is similar)?
1 Answer from Attorneys
Why don't you rent it and use the rent to pay the existing 30 year fixed?
Your verbs are horrible. The bank is the one who forecloses, by having the trustee under a deed of trust exercise the power of sale at a statutorily regulated trustee's sale. You don't foreclose unless you are the lender.
If only one deed of trust encumbers the property, and is foreclosed by a trustee's sale, then the bank cannot get a deficiency judgment pursuant to Code of Civil Procedure section 580d. If there is a subordinate deed of trust, which gets wiped out by a senior's foreclosure, then the answer is maybe you will get sued for a deficiency judgment.
There is also purchase money anti-deficiency protection, for certain classes of loans and transactions, based on Code of Civil Procedure section 580b. I'd have to know the full details of the transaction to tell you for sure.
I answer cautiously, because lenders used to require a high equity ratio before giving a 30 year fixed rate. With a high equity ratio, it is hard for me to fathom how you could be underwater. You must have additional deeds of trust on the property.
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