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Many of our clients had received phone calls from their ‘lender’ (before they were clients) who at the time sympathized with the fact they were behind on their mortgage payments. These folks are often told there is a solution for their problem. The lender then proceeds to give the client a long drawn out procedure to follow. At this point, the client has stopped making mortgage payments all together because they were instructed to stop making payments by the lender while going through the loan modification process. Most people place a lot of weight on their advice; after all ‘the lender’ loaned them the money originally. 
During this time clients are jerked around for about a year or longer. Until the day comes when the client receives a piece of Certified Mail – Foreclosure Notice which states that said lender who had been cooperating for so long is now foreclosing on their home. This is a common story and has become a very big problem. Although some loan modifications are successful and do bring relief to individuals it is important that you do not stop making your mortgage payment under any circumstances while submitting the applications and necessary documents. Avoid having to file a Chapter 13 bankruptcy to save your home from foreclosure and remember “If it sounds too good to be true, it probably is.”
Some things just are. It does not matter whether we think about it, like it or dislike it. It is what it is. Spending our time worrying about it does not change it. Feeling bad because of it does not make it any different. Wondering what other people think about it has no affect.
Getting a grip on reality is the first step toward finding a solution. When it comes to money problems it is easy to try to ignore the problem. That will work for a while. Others will worry about it. That doesn’t help at all. Feeling bad doesn’t help either.
I have met with thousands of people who struggle with debt. In twenty-five years of meeting with people to discuss their financial problems I have noticed a consistent pattern.
They almost always make the appointment long after the problem has gotten out of control. Many times they don’t take any action until they have suffered more than any reasonable person should.
Most everyone tells me how the problems started. What lead to falling behind on payments? Part of me wants to tell them that it does not matter. I am here to help deal with what is going on now. I listen to the story. In a way it is like most good books. There is a plot that has been used over and over, but the characters and the setting make it interesting. Almost every time the financial problems started with something everyone would agree is unfair.
That is one of the realities of life. Unfair things happen all the time. We don’t have control over this.
After hearing the story about the trouble that led to the financial stress, most people want me to know that they are not the kind of people that don’t pay their debts. That they are honest and want to pay but right now they cannot. I already know this, too. No one can get far enough into debt if they have not had a long history of paying their bills on time.
But, this is another reality of life. You cannot pay if you do not have any money.
My view is that things are what they are. There is no judgment involved. If you don’t have the money to pay debts, you are not going to pay them. It is not a moral question. It is just a fair observation of the way things are.
The next question is, what should you do about it? Once you take an objective look at what is going on making a decision is easier. It is hard to be objective when you are dealing with your own situation. That is where I can help.
I help people fix financial problems by filing bankruptcy. That does not mean I will recommend a bankruptcy to everyone that meets with me. In fact, a solid 20% to 30% of the people I meet with should not file bankruptcy. They were just too stressed about their problem to see the solution.
My main job is to help people get a grip on reality. It helps to talk things out and get an objective opinion. If you are thinking that you may need to file a bankruptcy, I can help.
If it turns out that filing bankruptcy is the best solution, then that is just another thing that is. Stressing, worrying, and ignoring this fact is not going to change it. Things are what they are. I can help you deal with it. And, it is not good or bad, it just is.
Original article: Getting Real: Bankruptcy & Financial Problems©2013 Arizona Bankruptcy Lawyer. All Rights Reserved.The post Getting Real: Bankruptcy & Financial Problems appeared first on Arizona Bankruptcy Lawyer.
A mistake that some people make after filing bankruptcy is being too cautious. Sounds strange, but it’s true. It feels really good to have a fresh start. So how can you possibly be too cautious with your credit after the mess your bankruptcy just cleaned up??
I am guilty of it. Since filing a Chapter 7 I wouldn’t buy anything unless I had cash. I was driving a reliable vehicle so I didn’t use credit for anything at all. I was downright afraid of credit cards. Big mistake.
Fourteen (14) years after filing, I decided to buy my newly licensed teenagers a car. I didn’t bother to check my credit… why would I? I hadn’t used or applied for any credit cards; I believed my credit should be perfect. At least that's what I thought. Every dealership I went to gave me the same answer. No. Not because I had bad credit, but because I had no credit. It was a rude awakening to be turned down for not having credit.
Eventually, I went to my credit union and was able to finance a car because I had been banking with them for years.
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The moral of the story? Don’t forget to re-build your credit after you file.
By: Ceara L. Riggs, Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.
Search for St. Petersburg/Tampa Bankruptcy Lawyers and what comes up? Pages about modifying your home or walking away from your home. Those aren’t the only two options, but they’re the most common options.
So how about modifying? It’s easy – as easy as filling out an application to be President of the United States. Well, although there’s no application to be President of the United States, there is an application for a modification. But unlike any other application or paperwork you’ve completed, after you complete the paperwork demanded by the bank (all 40-80 pages of it), you send it to the bank for them to review. Then you send it in again. And send it in again. And send it in again. And maybe send it in one more time. Then you wait until they tell you you need more documents. Rinse. Repeat. Oh yeah, and there’s no guarantee that you’ll get a modification at the end, by which time you’re even further behind on your mortgage.
Or, you can hire The Reissman Law Group, P.A. Our law firm can make your life easier by sparing you from the repeated sending and numerous requests. But, more importantly, in a typical scenario, the money spent on our attorneys may even reduce the amount of money that you pay out to the bank over the duration of the new mortgage. In other words, it’s worth it to hire someone that scares the bank – someone with an “E-S-Q” at the end of their name. (See end of author’s name)
Speaking of scaring the bank, the other option that seems to be advocated on the internet is to simply walk away – sell your house through a short sale process, enter into a Deed in Lieu agreement, or literally, walk away and let the bank foreclose. No matter what you choose, your next internet search better be for “Deficiency Judgment” and what you find will be scarier than Freddie or Chucky knocking on your door. What you’ll find is that your bank can lie in wait for 7 years and then, after they sold the house, probably entered into a new mortgage with a new borrower, and seemingly moved on with their lives by collecting money from the new borrower, they can come after you for this elusive, undisclosed “Deficiency Judgment.” Definition - unsecured money judgment against a borrower whose foreclosure sale did not produce sufficient funds to pay the underlying loan in full (thank you, Wikipedia!) So when you walk away from your house, selling it for less than the amount remaining on your loan, and usually it’s sold for a lot less, the bank can still collect that money from you, 7 years down the road, as a lump sum.
But, guess what? In this movie, you can finally get rid of the “Chucky” and make sure he doesn’t haunt you for 7 years. You can get rid of that deficiency judgment and not have it hanging over your head for 7 years. That means when you walk away from the house, in any form, you really can walk away from the house and start again. Now doesn’t that sound like a better idea?
To secure a modification or to start over without lingering debt haunting you, contact the attorneys at The Reissman Law Group, P.A.
By: Ceara L. Riggs, Bankruptcy Attorney in St. Petersburg, Florida at The Reissman Law Group, P.A.
Search for St. Petersburg/Tampa Bankruptcy Lawyers and what comes up? Pages about modifying your home or walking away from your home. Those aren’t the only two options, but they’re the most common options.
So how about modifying? It’s easy – as easy as filling out an application to be President of the United States. Well, although there’s no application to be President of the United States, there is an application for a modification. But unlike any other application or paperwork you’ve completed, after you complete the paperwork demanded by the bank (all 40-80 pages of it), you send it to the bank for them to review. Then you send it in again. And send it in again. And send it in again. And maybe send it in one more time. Then you wait until they tell you you need more documents. Rinse. Repeat. Oh yeah, and there’s no guarantee that you’ll get a modification at the end, by which time you’re even further behind on your mortgage.
Or, you can hire The Reissman Law Group, P.A. Our law firm can make your life easier by sparing you from the repeated sending and numerous requests. But, more importantly, in a typical scenario, the money spent on our attorneys may even reduce the amount of money that you pay out to the bank over the duration of the new mortgage. In other words, it’s worth it to hire someone that scares the bank – someone with an “E-S-Q” at the end of their name. (See end of author’s name)
Speaking of scaring the bank, the other option that seems to be advocated on the internet is to simply walk away – sell your house through a short sale process, enter into a Deed in Lieu agreement, or literally, walk away and let the bank foreclose. No matter what you choose, your next internet search better be for “Deficiency Judgment” and what you find will be scarier than Freddie or Chucky knocking on your door. What you’ll find is that your bank can lie in wait for 7 years and then, after they sold the house, probably entered into a new mortgage with a new borrower, and seemingly moved on with their lives by collecting money from the new borrower, they can come after you for this elusive, undisclosed “Deficiency Judgment.” Definition – unsecured money judgment against a borrower whose foreclosure sale did not produce sufficient funds to pay the underlying loan in full (thank you, Wikipedia!) So when you walk away from your house, selling it for less than the amount remaining on your loan, and usually it’s sold for a lot less, the bank can still collect that money from you, 7 years down the road, as a lump sum.
But, guess what? In this movie, you can finally get rid of the “Chucky” and make sure he doesn’t haunt you for 7 years. You can get rid of that deficiency judgment and not have it hanging over your head for 7 years. That means when you walk away from the house, in any form, you really can walk away from the house and start again. Now doesn’t that sound like a better idea?
To secure a modification or to start over without lingering debt haunting you, contact the attorneys at The Reissman Law Group, P.A.
The post There’s A Monster in the Closet! appeared first on St. Petersburg Law Blog.
Stories of Warren Sapp’s bankruptcy filing has been all over the news lately. It’s hard to imagine he’d find himself in such a predicament. After all, he’s a pro-bowler with at least $40 million in career NFL earnings. He has a good job as a very entertaining television analyst which has led to other money making endeavors, such as Dancing with the Stars.
Unfortunately, Warren Sapp is just the most recent of a long line of NFL players who have gone broke after their NFL career. According to a 2009 Sports Illustrated article, 78 percent of NFL players go broke 3 years after their playing careers end. Which is especially bad news because the average career of an NFL players is only 3.5 years.
Why does it happen? First off, only a very few will ever make the same money they made during their career. And while they are making the big bucks, they get sucked into bad investments, pursued by freeloaders and an entourage looking for handouts, and are barraged with bad advice from people they think they can trust. Add to that, football has taken a big toll on their bodies so medical problems start arising. Plus, they are young kids who suddenly have the money of their dreams and what they’ve worked for years. Of course they’ll want to show-off a bit and live the life of movie stars.
So, to the NFL Class of 2012 (or to anyone else who has suddenly come into large amounts of money), here’s what to remember:
1) Plan for the Worst. Celebrate now. You deserve it. But, your earning and your career depend on many things all working together for a number of years, including your health, your skills, the offense or defense your team runs, your coach, hungry rookies and free agents in coming years, and countless other events that may be beyond your control. Even in a short career, you may make more money than most Americans make over their lifetimes. Spend some now, treat yourself but don’t continue to overspend. But plan to make the most of it rest last your life.
2) Your Agent Shouldn’t Advise You on Your Money. Agents should never be your source for financial advice. It’s not their expertise. They are great at what they do- negotiating your deal. But, just as you don’t want a DT kicking field goals, you need an outside person to handle your money (preferably not a family member or a friend unless that was their business before you signed your contract). Too many financial disasters are the result of bad advice from agents who get in over their heads.
3) No Private Investment or Real Estate Deals. You are now a target of people looking for easy money, These people are smooth talkers and put on a good show telling you about guaranteed profits in real estate and investments. 
But, remember no one is going to give you money just because of who you are or what team you play for- they want your money. They’ll use your money to pay themselves a good commission and could care less whether the deal is real or one that will pay off (if the deal was even real in the first place). Even when your friends come to you with deals, be skeptical about who contacted them. Stay away from private investment and real estate deals. Too many things can go wrong, business deals are not your expertise- just ask John Elway (lost $3million to a hedge-fund manager who was arrested on charges that he ran a Ponzi scheme), Mark Brunell (filed bankruptcy after failed business ventures, including 12 Whataburger restaurants), or Deuce McAllister (lost bigtime in car dealership.
4) USE PROTECTION. Child Support payments continue until the child grows up. You’re old enough now to know that you are on the hook for an unplanned pregnancy, not matter what is said in the heat of the moment. The major reason behind the financial problems of Warren Sapp, Chris McAlister, Travis Henry and many others are the child support payments. These payments are often valued at the height of a playing career and can be $5000 to $10000 a month. And, guess what, you have to keep making these payments for over 20 years. Warren Sapp is over $728,000 behind in child support payment and is required to pay about $75,000 a month. Bankruptcy won’t help him with those payments either.
5) It Can Happen to You. You’ve been a star your whole life. You know deep inside that you will continue to be a star and your career will continue until you’re 40 so money will never be a problem. I hope that’s the case. Then, you won’t have to worry. But, still, don’t you think that a little prior proper preparation is worthwhile- just in case.
There comes a time in every case when the bankruptcy lawyer needs to shut up and sit down, especially if the lawyer is not absolutely certain what the response of the witness will be. The following is funny as well as a perfect example of how a case can be lost because of one last question that a lawyer in Bankruptcy Court felt compelled to ask.
I had filed a Chapter 11 bankruptcy for a neurosurgeon. This particular doctor marched to his own drummer and handled his practice differently than most physicians. For example, he did not use a billing service but rather handled his own billing and was not particularly aggressive in collecting his fees. In fact, he handled most of his practice in an informal and relaxed manner. The foregoing facts caused one of his major creditors a great deal of concern. This creditor believed the doctor’s income would be dramatically increased if the business end of his practice were handled in a more business like fashion. This creditor as a result hired an attorney for the purpose of urging the Judge to appoint a Chapter 11 Trustee to run the business end of the neurosurgeon's practice.
At the Hearing to have a Trustee appointed, the attorney for the creditor aggressively questioned the Doctor about his methods of handling his business records, collections and a whole host of related questions. After nearly four hours the creditor’s lawyer concluded his questioning, but as he was returning to his seat he turned back to the Doctor and said he had one more question, “Doctor, you do not even get basic information from your patient when you first see him/her, isn’t that true? The Doctor's response was both brilliant and funny. So funny that the Bankruptcy Judge and everyone sitting in the courtroom laughed. The Doctor's response was:
”I doubt that you understand how my practice works or you wouldn't have asked this question. The fact is the majority of my patients are unconscious when I first see them and it would be impossible for me to ask them anything at all."
Needless to say the Bankruptcy Judge denied the Motion to have a Trustee appointed.
What are the qualifications for an individual/couple to file for Bankruptcy? The answer to this question is simple -- there are no qualifications for filing Bankruptcy. Everyone has the right to file a petition for relief under the Bankruptcy Code. All one has to do is file a Petition for Relief with the Bankruptcy Court. What type of bankruptcy an individual/couple can file does have certain qualifications. .png)
For most of us, the choice is between filing a Chapter 7 bankruptcy in which one requests relief in the form of debt forgiveness of most of his/her debts or Chapter 13 bankruptcy in which one agrees to pay all or a portion of one’s debts over a period that varies between 3 to 5 years with certain exceptions such as your home mortgage. How much gets paid back depends on how much “disposal income” a person has. In general, this means how much money you have left over after paying your monthly expenses without considering the debts to be included in the Bankruptcy.
In 2005, the Bankruptcy Code amended one of the major features of which was to require a person to meet an income and expense test in order to qualify for Chapter 7. This test is known as the “Means Test”. Certain classes of people are exempt from the Means Test such as if a person’s debts are more than 50% business related and certain types of income are excluded such as social security income. If you do not qualify under the Means Test to file a Chapter 7 then you have the option of filing a Chapter 13. If you qualify under the Means Test then you can file a Chapter 7 or a Chapter 13. The Means Test is divided into two (2) distinct parts. The first part is based strictly on gross income for the six (6) months preceding the filing of a Bankruptcy case. How much gross income allowed is dependent upon what state the person lives in and the size of the family unit. If one exceeds the gross income test then the second part of the test comes into play which takes into consideration certain deductions, some of which are standardized and some of which are variable. For example, housing. If one rents then a deduction for housing is standardized based upon the county in which a person resides. If you own a home a deduction is allowed for the full mortgage payment including escrow for insurance and taxes. There are standardized deductions for food and a variable deduction allowed for contributions to one’s church. At the end of the second part of the test a determination is made as to whether a person has sufficient disposable income to pay a percentage of unsecured debts to creditors.
In general, anyone can file Bankruptcy but must meet certain qualifications to file Chapter 7. There are other types of bankruptcy that addresses certain specific situations such as chapter 12 which deals with farmers that are experiencing financial difficulty, Chapter 11 for businesses and individuals with special problems. For most of us, the choice is between Chapter 7 and Chapter 13 of the Bankruptcy Code.
California has three separate statutory provisions that prohibit a lender from obtaining a deficiency judgment after foreclosure. These provision are found at Cal. Civ. Proc. § 580b, Cal. Civ. Proc. § 580d in conjunction with Cal. Civ. Proc. § 726(a), and after July 15th, 2011, Cal. Civ. Proc. § 580e. A deficiency is simply the loss that a lender sustains after the property is foreclosed. The deficiency is measured by the difference between what is owed on the loan and what the bank collected from selling the property after foreclosure. A deficiency judgment after foreclosure may result in a wage garnishment, bank account levy, and a judgment lien against other property owned by the borrower. Because of the seriousness of a deficiency judgment sound legal advice should be sought out whenever foreclosure appears imminent.
If a borrower is facing an imminent foreclosure or has already had a property foreclosed and one of the California statutory provisions to be discussed below is not helpful a bankruptcy discharge may be the only means of averting the negative consequences of a deficiency judgment. In reviewing options with a client as a bankruptcy attorney, I always start with non-bankruptcy law. With that in mind I summarize the non-bankruptcy protections found in the California anti-deficiency provisions.
The first statutory provision that may protect a borrower from a deficiency is Cal. Civ. Proc. § 580b. Cal. Civ. Proc. § 580b protects a borrower from a deficiency after foreclosure where the property is occupied by the borrower as a personal residence and where the money borrowed from the lender was used for the purchase of the property. This provision does not protect a borrower where the property is not a dwelling occupied by the borrower or where the loan was not part of the financing used to buy the property. Specifically this provision does not protect a borrower if the loan was a refinance loan or an equity line of credit.
The specific language of Cal. Civ. Proc. § 580b reads as follows: “[n]o deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.
The second statutory provision that may protect a borrower from a deficiency is Cal. Civ. Proc. § 580d. Cal. Civ. Proc. § 580d in conjunction with Cal. Civ. Proc. § 726(a) is often referred to as the “Single Action Rule.” Basically what this means is if a lender non-judicially forecloses on the property (power of trust deed sale) they may not later seek a deficiency. Practically speaking this means that in over 99% of foreclosures by a senior lienholder (the holder of the first Trust Deed) the senior lienholder will not be able to collect a deficiency. However, note in rare cases where the property has very little value or no value and or if the borrower has independently very deep pockets the lender may choose judicial foreclosure and after the foreclosed property is sold obtain a money judgment for the balance of the loan. One of the reasons that judicial foreclosure is rare in California is that it can take the lender much longer to ultimately foreclose on the property.
Another problem with the “Single Action Rule” is that it does not protect the borrower from being sued by a junior lienholder who either waives their right to foreclosure or sues after the property is foreclosed by the senior lienholder. Very frequently, a borrower will wind up owing a deficiency to a junior lienholder after the senior forecloses where the junior lien arose out of a home equity line of credit or from a refinance that included a second. The term that is often associated with this a “deficiency from a sold out junior lienholder.” However where there is a “sold out junior lienholder” there is case law that may still prohibit them from collecting on the deficiency. One California appellate case holds if the senior lienholder and the junior lienholder are one in the same than the foreclosure by the senior lienholder precludes the collection of a deficiency by the junior. The junior lienholder is deemed to have sold itself out and elected its sole remedy on CCP 726(a). Simon vs. Superior Court, 4 Cal.App.4th 63, 5 Cal.Rptr.2d 428 (1992). Taking this one step further the California Court of Appeal recently held that where the senior and junior are owned by the same bank that an assignment to another lender of the junior after foreclosure does not allow the assignee to collect a deficiency. Bank of America vs. Mitchell, 2012 Westlaw 1177866 Cal.App. However the lender may circumvent the Simon and Bank of America vs. Mitchell results by assigning the junior trust deed prior to foreclosing on the senior trust deed. National Enterprises, Inc. v. Woods, 94 Cal.App.4th 1217, 115 Cal.Rptr.2d 37 (2001).
The last statutory provision that may protect a borrower from a deficiency is Cal. Civ. Proc. § 580e. Cal. Civ. Proc. § 580e only became effective July 15th, 2011. The provision expands anti-deficiency protection to all mortgages or deeds of trust if all lenders agree to a short sale. A short sale occurs when the lender allows homeowners to sell their property for less than the amount owed to the lender. Although the lender receives less than the full value of the loan in a short sale, the lender avoids the costs of both the foreclosure and resulting expenses of a property which would end up with the lender. All lenders still have to agree to a short sale process. The law also makes clear that the protections do not apply to commercial loans with multiple security which includes a security interest in residential property.
As discussed earlier consulting with bankruptcy counsel early on may allow a distressed borrower to explore the greatest number of available options. Bankruptcy may be used not only to avert the negative consequences of a deficiency judgment but a Chapter 13 may sometimes be also be used proactively to get caught up on defaulted payments or to avoid/ strip a wholly unsecured junior lien from the property altogether. Please feel free to contact my office for assistance.
California has three separate statutory provisions that prohibit a lender from obtaining a deficiency judgment after foreclosure. These provision are found at Cal. Civ. Proc. § 580b, Cal. Civ. Proc. § 580d in conjunction with Cal. Civ. Proc. § 726(a), and after July 15th, 2011, Cal. Civ. Proc. § 580e. A deficiency is simply the loss that a lender sustains after the property is foreclosed. The deficiency is measured by the difference between what is owed on the loan and what the bank collected from selling the property after foreclosure. A deficiency judgment after foreclosure may result in a wage garnishment, bank account levy, and a judgment lien against other property owned by the borrower. Because of the seriousness of a deficiency judgment sound legal advice should be sought out whenever foreclosure appears imminent.
If a borrower is facing an imminent foreclosure or has already had a property foreclosed and one of the California statutory provisions to be discussed below is not helpful a bankruptcy discharge may be the only means of averting the negative consequences of a deficiency judgment. In reviewing options with a client as a bankruptcy attorney, I always start with non-bankruptcy law. With that in mind I summarize the non-bankruptcy protections found in the California anti-deficiency provisions.
The first statutory provision that may protect a borrower from a deficiency is Cal. Civ. Proc. § 580b. Cal. Civ. Proc. § 580b protects a borrower from a deficiency after foreclosure where the property is occupied by the borrower as a personal residence and where the money borrowed from the lender was used for the purchase of the property. This provision does not protect a borrower where the property is not a dwelling occupied by the borrower or where the loan was not part of the financing used to buy the property. Specifically this provision does not protect a borrower if the loan was a refinance loan or an equity line of credit.
The specific language of Cal. Civ. Proc. § 580b reads as follows: “[n]o deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.
The second statutory provision that may protect a borrower from a deficiency is Cal. Civ. Proc. § 580d. Cal. Civ. Proc. § 580d in conjunction with Cal. Civ. Proc. § 726(a) is often referred to as the “Single Action Rule.” Basically what this means is if a lender non-judicially forecloses on the property (power of trust deed sale) they may not later seek a deficiency. Practically speaking this means that in over 99% of foreclosures by a senior lienholder (the holder of the first Trust Deed) the senior lienholder will not be able to collect a deficiency. However, note in rare cases where the property has very little value or no value and or if the borrower has independently very deep pockets the lender may choose judicial foreclosure and after the foreclosed property is sold obtain a money judgment for the balance of the loan. One of the reasons that judicial foreclosure is rare in California is that it can take the lender much longer to ultimately foreclose on the property.
Another problem with the “Single Action Rule” is that it does not protect the borrower from being sued by a junior lienholder who either waives their right to foreclosure or sues after the property is foreclosed by the senior lienholder. Very frequently, a borrower will wind up owing a deficiency to a junior lienholder after the senior forecloses where the junior lien arose out of a home equity line of credit or from a refinance that included a second. The term that is often associated with this a “deficiency from a sold out junior lienholder.” However where there is a “sold out junior lienholder” there is case law that may still prohibit them from collecting on the deficiency. One California appellate case holds if the senior lienholder and the junior lienholder are one in the same than the foreclosure by the senior lienholder precludes the collection of a deficiency by the junior. The junior lienholder is deemed to have sold itself out and elected its sole remedy on CCP 726(a). Simon vs. Superior Court, 4 Cal.App.4th 63, 5 Cal.Rptr.2d 428 (1992). Taking this one step further the California Court of Appeal recently held that where the senior and junior are owned by the same bank that an assignment to another lender of the junior after foreclosure does not allow the assignee to collect a deficiency. Bank of America vs. Mitchell, 2012 Westlaw 1177866 Cal.App. However the lender may circumvent the Simon and Bank of America vs. Mitchell results by assigning the junior trust deed prior to foreclosing on the senior trust deed. National Enterprises, Inc. v. Woods, 94 Cal.App.4th 1217, 115 Cal.Rptr.2d 37 (2001).
The last statutory provision that may protect a borrower from a deficiency is Cal. Civ. Proc. § 580e. Cal. Civ. Proc. § 580e only became effective July 15th, 2011. The provision expands anti-deficiency protection to all mortgages or deeds of trust if all lenders agree to a short sale. A short sale occurs when the lender allows homeowners to sell their property for less than the amount owed to the lender. Although the lender receives less than the full value of the loan in a short sale, the lender avoids the costs of both the foreclosure and resulting expenses of a property which would end up with the lender. All lenders still have to agree to a short sale process. The law also makes clear that the protections do not apply to commercial loans with multiple security which includes a security interest in residential property.
As discussed earlier consulting with bankruptcy counsel early on may allow a distressed borrower to explore the greatest number of available options. Bankruptcy may be used not only to avert the negative consequences of a deficiency judgment but a Chapter 13 may sometimes be also be used proactively to get caught up on defaulted payments or to avoid/ strip a wholly unsecured junior lien from the property altogether. Please feel free to contact my office for assistance.
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