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Wrong.

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

It can even happen to people who got their bank to approve them selling their home for less than it is worth.

Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.

“My understanding was that the deficiency was negotiated away,” she said. “Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it.”

Many homeowners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so called “liar loans” where they didn’t have to verify their income.

Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments.

“After the banks foreclose, it’s very common now to have large deficiencies with houses not worth the balances owed,” said Don Lampe, a North Carolina real estate attorney.

Lenders mostly declined comment. Although Corey’s lender, BB&T did indicate it was pursuing more deficiency judgments.

“They follow the rise and fall of foreclosures,” said the spokeswoman, who would not discuss Corey’s account.

Can they come after you?

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.

“Once they have a judgment, they can pursue you anywhere,” said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Fla. “They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail.”

In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms.

Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims.

Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank.

But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation.

“People shouldn’t have a false sense of security that a deficiency judgment may not be later sought,” Zaretsky said.

He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount.

“The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting,” Zaretsky said.

Ticking time bomb

What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.

It doesn’t have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job.

It wasn’t until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable.

“I told them, ‘Hey, you guys released the title,’” he said. “As far as I know, I’m off the hook.”

He wasn’t. Releasing title does not necessarily end the debt. It’s complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan.

Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale.”

Lenders are also very inconsistent. One of Zaretsky’s short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency.

Strategic defaults

Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky.

If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu.

Robinson himself knows what can happen. He paid off a deficiency after his own New Jersey house went through foreclosure 11 years ago.

Published by Yahoo News.

In California the banks can not go after you if the money was purchase money.  If the money was refinance money then they will come after you for the deficiency.  The best scenario is to do a short sale and negotiate the deficiency judgements on refinance money at closing.

ANGEL LYNN

Quick Facts

-  Judicial Foreclosure Available: Yes

-  Non-Judicial Foreclosure Available: Yes

-  Primary Security Instruments: Deed of Trust, Mortgage

-  Timeline: Typically 120 days

-  Right of Redemption: Varies

-  Deficiency Judgments Allowed: Varies

In California, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure

The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

A notice of sale must be: 1) recorded in the county where the property is located at least fourteen (14) days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale; 3) posted on the property itself at least twenty (20) days before the sale; and 4) posted in one (1) public place in the county where the property is to be sold.

The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee’s name, address and phone number and a statement that the property will be sold at auction.

The borrower has up until five days before the foreclosure sale to cure the default and stop the process.

The sale may be held on any business day between the hours of 9:00 am and 5:00 pm and must take place at the location specified in the notice of sale. The trustee may require proof of the bidders ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder. If necessary, the sale may be postponed by announcement at the time and location of the original foreclosure sale.

Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.

]]> http://www.myshortsaleangel.com/2009/12/california-foreclosure-law-summary/feed/ 1 http://www.myshortsaleangel.com/2009/07/new-short-sale-listing-video-in-rocklin/ http://www.myshortsaleangel.com/2009/07/new-short-sale-listing-video-in-rocklin/#comments Wed, 29 Jul 2009 11:36:00 +0000 Angel http://myshortsaleangel.com/?p=51 New Short Sale listing in Rocklin take look at my first video. Still learning how to use the flip! Call me if you would like to schedule an appointment to view this property.]]>

New Short Sale listing in Rocklin take look at my first video. Still learning how to use the flip!

Call me if you would like to schedule an appointment to view this property.

Watch and learn from our favorite foreclosure specialist real estate agent as she visits her 2 REOs (Bank Owned Homes) in Elk Grove, a Sacramento’s suburb.

First we see Angel visit her brand new REO listing on Sea Cliff Way and learn many interesting details about working with bank-owned homes: initial inspection, putting on a lock box, changing locks and taking pictures for the BPO (Broker Price Opinion, like a mini-appraisal).

Then she visits her other bank-owned home on Splendid Way to change the sign from “Coming Soon” to “Pending”. It came and went – with over 13 offers in one week! Find out why it went so fast.

Highlights: The funny locksmith guy from Israel who says he can open a bank safe and Angel pointing out interesting details about managing bank-owned homes (She even drops some tips about how she got into the REO business!)

Update: Video Fixed! It was freezing around 7 minutes before. Enjoy!

Introducing… The Angel Lynn Deal Board™:

BAM!

This amazing whiteboard is constantly updated to show our deal pipeline at a glance. The short sales in negotiation are at the bottom. Any pending deals in escrow are on top with closing dates, agent responsible, etc.

Here is a quick update on all our deals.

Available: (An Offer Anybody?)

Regular Listings:
2220 E Street, Sacramento, CA 95816
225 Majestic Road, Sacramento, CA 95838

Short Sales:
1294 Berggren Way, Sacramento, CA 95815
200 Trophy Court, West Sacramento, CA 95608
2451 27th Ave, Sacramento, CA 95822
3608 Silverwood Rd, West Sacramento, 95691
3800 Bigler Way, Sacramento, CA 95817
636 Watercolor Ln, West Sacramento, CA 95605

REOs (Bank Owned):
7409 Windjammer Way, Citrus Heights, CA 95621
9645 Sea Cliff Way, Elk Grove, CA 95758

Pending / In Escrow:

Short Sales: In Negotiation or Waiting For Bank Approval
1009 Dolores Way, Sacramento, CA 95816
1110 Kay Cir, Turlock, CA 95382
1501 Secret Ravine Parkway #1927, Roseville, CA 95661
2387 Snowberry Cir, West Sacramento CA 95691
3083 Garden Hwy, Sacramento, CA 95833
311 James Avenue, Red Bluff, CA 96080
7768 Stabler Court, Sacramento, CA 95828
8450 Sunrise Woods, Sacramento, CA 95828
9875 Tarzo Way, Elk Grove, CA 95757

Short Sales: Approved, In Escrow (Yay!!)
1035 Fountain Drive, West Sacramento, CA 95605
1114 Kay Circle, Turlock, CA 95382
201 Woodhaven Drive, West Sacramento, CA 95605
4233 Worthington Drive, North Highlands, CA 95660
5500 Big Creek Way, Elk Grove, CA 95758

REOs (Bank Owned) In Escrow:
7615 Splendid Way, Elk Grove, CA 95758

Regular Listings in Escrow:
[None at the moment]

Purchases in Escrow:
2838 Clicker Ct, West Sacramento, CA 95691

The 5 Mistakes Are:

1. Stop Paying Without a Plan — depending on the bank you can actually start a loan workout / modification or a short sale without stopping your payments! Other times you may need to stop paying to get their attention (or because you simply don’t have money!) Angel will never tell you to stop making your payments without making sure you understand the consequences.

I think this turned out to be a pretty nice first video with some valuable tips… what do you think?