Upcoming Foreclosures

Foreclosure and Lender recourse?

My fathers house is going into foreclosure in California. He has a 1st of $375k and a 2nd Heloc of $50k. He received these two loans after a refi in 6/07. The refi only left him to receive $5k cash out that was all that was left in the Heloc the rest was used up in the loan itself and when back to pay the bank. Both loans are with the same lender. I know in Calif. there is a law that says the bank cannot put a judgement against you if it is your primary residence. Do does that mean that the only recourse they have is to use the property to satisfy the date?

Public Comments

1. What the California law states is that there is no recourse only if there has been no refinance. What this basically means that if you are on your original mortgage, if the house is foreclosed upon and the bank sells it for less that the loan amount, the bank cannot come after the debtor for the remaining balance. In this case, since your father has refinanced the original mortgage, it would seem that if the lenders want to come after your father for payment of the debt (assuming that the house sells for less than the total balances on the two mortgages) they will be allowed to seek judgment.
2. Your understanding is incomplete. California has a "1-Action Rule". That means, the lender is permitted to either: a) Foreclose by means of a Trustee Sale b) Foreclose by means of a Judicial Action A lender may not foreclose by both. When the mortgage is a "purchase money loan" used by the borrower with the intent to occupy the property, the lender cannot foreclose by judicial action. All refinances, by definition, are NOT purchase money loans. Consequently, this lender may foreclose by either a judicial action or by a Trustee sale. The most likely actions that will occur is as follows: Step 1) The Lender will use the 1st Trust Deed to Foreclose by Trustee Sale. Step 2) The Lender (I know it's the same lender, but that's irrelevant) on the HELOC, will become an unsecured lender. They will send that unsecured loan to collection, and they are entitled to every penny. Step 3) Once both loans have been "charged off", at the end of 2009, your father will receive a 1099 in the amount of the loan that was charged off. HE MAY HAVE A HUGE INCOME TAX LIABILITY.