After Foreclosure in CA, second mortgage appears unpaid and open on my credit...
In the past 2 year I foreclosed on a home in California. The first and second mortgages
were purchase money loans from two different lenders. I recently checked my credit and the second mortgage appears as unpaid and open. I thought that as a purchase money loan, the second is a "non-deficient" loan that they could not legally collect on as it is non-recourse. Why is this still listed as open and unpaid on my credit? Shouldn't it just be listed as foreclosed and "closed?" How do I get this closed or is it just logistics and will remain damaging on my credit for 7 years? Thanks for the help!
Chapter 7 Bankruptcy Attorney
Here are some Quick Facts about foreclosure in California
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.
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.
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.
Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.
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Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship.
Real Estate Attorney
Was it a judicial or non-judicial foreclosure? I believe that makes all the difference in CA (they can come after you if it was judicial).
This is not legal advice and is not intended to create an attorney-client relationship. The post is only an opinion. You should speak to an attorney for further information. The poster is licensed only in CT & NY. Please visit www.hamadlawfirm.com for more information about our services. If this post is useful to you, please remember to upvote it.
You are assuming that the second mortgage is a purchase-money, non-recourse loan. The legal question (which is often times very fact specific) is whether or not the second is really a non-recourse loan.
In California, non-recourse laws apply only to “purchase money” loans (i.e. original home loans that are used to purchase property). However, almost all HELOCs and home equity loans (even when taken out at the same time as the first) are considered recourse loans and lenders for these loans may sue borrowers to recoup loss.
If I understand your facts correctly, it was the first mortgage which foreclosed within the past two years, but the second mortgage did not foreclose. If so, then the when the first mortgage foreclosed, the second was left with no equity. The second is what is sometimes referred to as a “sold out junior”, who is left with a legally worthless lien.
In Roseleaf Corporation v. Willy F. Chierghino (1963) 59 Cal.2d 35, the California Supreme Court held: “the one form of action rule of section 726 does not apply to a sold out junior lienor…….there is no reason to compel a junior lienor to go through foreclosure when there is nothing left to sell…….their security has been rendered valueless by a senior sale.”
As such, the debt you owe on the second does not disappear after the the first mortgage forecloses. The second is entitled to sue on the note to try to collect the debt.
Again, this is a factually specific question, depending upon whether the second mortgage was 100% used to purchase the home. If not, your second mortgage might be considered a HELOC which is part purchase money and part not purchase money. Any portion of the HELOC used to purchase the property is considered purchase money instrument, and the second mortgage lender will not be able to perfect a deficiency judgment as to that portion. However, the balance of the HELOC which was taken out over the time subsequent to the close of escrow is not purchase money, and the second mortgage lender can obtain a judgment against you for that portion.