October 05, 2010
Author: Eric Townsend
Home owners walking away from their properties in foreclosure do so at their own risk. Only certain types of mortgages allow homeowners to walk away from their properties without recourse and now those same home owners will be protected when they instead go through the short-sale process.
Home loans, where the borrower also lives in the home as their primary residence, that were obtained to initially acquire property are protected under anti-deficiency statutes. Unfortunately, these loans do not represent the majority of borrowers who have home loans.
Over the last several years borrowers have refinanced their properties to obtain lower interest rates or to delay balloon payments coming due under an adjustable rate mortgage. When a loan is refinanced it is no longer classified as a loan used to acquire property and is left unprotected under the anti-deficiency statutes.
What does this mean? This means that should a homeowner choose to exit their investment (walk away from their home and home loan) in most cases they will be liable for the difference between what they owe and the amount the property brings in a foreclosure sale. This could leave homeowners that walk away in foreclosure with tens if not hundreds of thousands of dollars in debt. But for homeowners there is an alternative.
Governor Schwarzenegger recently signed SB 931 which provides relief to homeowners, but there is a cost. Homeowners that walk away must do so through a short-sale. This legislation adds a section (e) to Civ. Code sec. 580 and protects property owners – not including S or C corporations – from a deficiency judgment if their lenders agree to a short-sale. This means many homeowners that would have had to declare bankruptcy can now be relieved of their debt if they do the right thing and help the lender sell the property in a non-distressed short-sale.
If you have any questions or comments regarding this blog email us at blog@lauruslaw.com
No comments:
Post a Comment