In a recent report I received from REALTOR magazine an attorney spoke about banks coming after homeowners in foreclosures and short sales. In high foreclosure states like California where Riverside, San Bernardino, and San Diego counties in just the Southern part of the state have been highly affected by foreclosure this is information that can’t be ignored and I want to share this information with you here.
Some lenders are seeking action against homeowners who have walked away from their mortgages in foreclosure and some short sales. Some states allow for 2 action foreclosures. California is NOT one of them we are a 1 action state. What that means is that the banks have 1 of 2 options against a homeowner in a foreclosure situation; they can either do a regular foreclosure or a judicial action. States that allow 2 steps is that the lender can foreclose on the homeowner and THEN seek further action for damages they suffer in the foreclosure and seek remedy for that. Example…. House is foreclosed on, about 3 months later when it sells it sells for less than what was owed on the mortgage and then the lender hires an attorney to go after the foreclosed homeowner for the remaining amount that is owed on the mortgage.
Many states, not California, give mortgage holders as long as five years to seek a deficiency judgment. If granted, the bank gets up to 20 years to collect and the option to renew for another 20 years if the debt isn’t paid against homeowners who have either had their homes foreclosed on or agreed to a short sale.
Another item to note is that most states California DOES allow this, allow collection on unpaid home-equity loans. And the only way to get out of a 2nd or 3rd mortgage lender from coming after you EVEN after they agree to a payoff in a short sale is to wipe them out in a Ch. 7 Bankruptcy.
You have to remember that mortgage lenders can pull your credit and see if you are paying your other bills on time and if you look to be financially ok to them, they could come after you and ruin you financially.
There is a false sense of security that some real estate agents spin, either because they don’t know or they don’t want to scare you out of the listing with them. As a homeowner you need to know these things, if you have a line of credit or 2nd mortgage on your home and you are considering a short sale make sure your agent knows about the pitfalls and advises of such. Always seek the advice of an attorney and CPA when considering a short sale or foreclosure.
article by Kathryn Davis