This article discusses California foreclosure laws in very general terms and omits many specific nuances which may make such laws inapplicable to you. California foreclosure laws are complex and every-changing. Thus, only an extremely large textbook would even begin to explain their intricacies. The following is presented just to provide you with a very basic foreclosure and short sale education.
California law prohibits a foreclosing lender from holding a homeowner personally liable for the debt of a first mortgage after foreclosure on that borrower’s primary home that has never been refinanced. Thus, whether such a home is lost through foreclosure or short sale, the lender may not “go after” the borrower for any money on the first mortgage.
California also has a “security first” law that requires lenders to seek recovery from the security before holding borrowers personally liable debts.
However, such laws do not apply to a primary home that has been refinanced for cash out and has multiple mortgages. These cash out borrowers may have personal liability for the debt on their second mortgage even after foreclosure on a primary house.
To further complicate any understanding of these laws, a short sale is different from a foreclosure. The difference means that personal liability for a debt which may not have been present after foreclosure may exist after a short sale. Some short sales leave a homeowner to face personal liability for the difference between the sale price and the amount owed on the mortgage.
Because brokers and agents are paid only if a sale goes through, they may not provide impartial advice as to whether a short sale is in the best interests of a cash-out borrower. If you have decided to let your house go you need dependable and unbiased advice, because you need to choose carefully between foreclosure and
short sale. Assuming you have no personal liability for your mortgages, you could take whichever choice would allow you to stay in your home for the longest period of time. In general, a short sale can allow you to stay in your home for a longer period of time. Lenders benefit from short sales as homes sold at short sale often sell for more than bank-owned properties. Sales of bank-owned properties drive down prices in entire neighborhoods.
However, if a short sale might leave you with personal liability, you should determine whether there are any ways you can eliminate or minimize that liability. A Fransen & Molinaro mortgage attorney can provide an honest opinion about the advantages and disadvantages of short sale versus foreclosure. Because we are paid hourly, our advice can be considered unbiased as opposed to people who are paid only “when the deal closes.” Call us now for information you can trust.
Paul J. Molinaro, M.D., J.D.
Attorney at Law, Physician, Broker
980 Montecito Drive, Suite 206
Corona, CA 92879
** This post and all others I make on Internet are for informational purposes only. None of the information or materials I post are legal advice. Nothing I post as comments, answers, or other communications should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship. While I try to be accurate, I do not guarantee accuracy.