Legal Question in Real Estate Law in California

Re: real estate+ foreclosure/short sale

If your credit is 780, then I am assuming you are still current on your mortgage payments. So, unless you are willing to stop paying the mortgage on those two properties, foreclosure is not an option. A short sale is a bank approved sale that forestalls a pending foreclosure action, but again, it is only approved by the bank when you are not making your mortgage payments. If you are willing to take a loss on those properties, I would try selling them on your own, and not through a short sale. If you wind up owing the banks after selling those prior properties then yes, they may pursue you and procure a judgment against you -- and lien the new property to enforce it.

I would talk with your accountant and a lawyer to map out your best options.

Yours truly,

Bryan

877.201.8728

Re: real estate+ foreclosure/short sale

I agree with Mr. Becker, but I think he stopped a bit short of explaining the deficiency judgment threat fully.

Foreclosing lenders who aren't fully paid off from the proceeds of sale can sometimes, but not always, obtain a judgment against the borrower for the deficiency. Whether a deficiency judgment is available or not requires going through a kind of question-and-answer "decision tree" where about ten questions need to be asked to assess your risk.

In general, you are more at risk when any loan on a property was not a "purchase money" loan; where the lender uses judicial foreclosure rather than a trustee's sale (and this in turn may depend upon whether the lender senses that you have other assets that can be tapped to satisfy a deficiency judgment); and when the property was not owner-occupied. If the lender thinks there was loan-application fraud, that also increases the risk of deficiency judgment or a collateral suit for the fraud.

Wholly aside from the rights of the foreclosing lender, there is the risk of a suit by the holder of a second deed of trust which loses its security as a result of foreclosure by the senior lienholder. If there is a non-purchase-money junior loan on either property, beware!

I recommend taking the fullo set of facts to a local real-estate lawyer and asking for a free consultation - or be willing to pay for an hour or two of explanation of the "single action rule" and the "antideficiency rules" as well as hints as to what route lenders are actually taking in your community (judicial vs. trustee sales, etc.) in circumstances similar to yours.

Your situation seems to possess some risk factors - property bought for investment rather than residence, and other assets that could be attacked after a judgment. There may be others not revealed by your somewhat brief facts.