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Quote of the Day - The meek may inherit the earth, but the other kind inherits the mortgage. - Noah Goldstein
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Unexpected Fallout From The Subprime Mortgage Crises: The Deficiency Judgment

You May Get To Pay All Over Again

In California (if you live elsewhere, then you'll have to check your local listings), we have an anti-deficiency rule.  It means that if you default on your home loan and your mortgage company forecloses and sells your home for less than you owe, then it can't collect the shortfall from you.  But the rule only applies to "purchase money" mortgages, which means only your first mortgage.  The protection does not apply to home equity loans or second (or later) mortgages, either.

If you refinanced your home after buying it, then the anti-deficiency rule doesn't apply.  In the instance cited above, your mortgage company can sue you and obtain a judgment against you for the difference between the foreclosure sale price and the amount of your outstanding mortgage.

Ouch.

It's happening to a lot of people, who claim not to understand why.  They somewhat learned about the anti-deficiency rule somewhere along the line, and kind of know that the mortgage company can't sue them, but express great shock when it happens. 

Even if you refinanced your property, then you still have the protection of the one-action rule, which requires your mortgage company to foreclose on the real property before it tries to recover from you, except where the property has become worthless as a practical matter or the mortgage has been extinguished by a prior foreclosure of a senior mortgage.  Small consolation, however, where you're upside down in your property, which appears to be the case for many people, and some who are quite prominent.

So, what's the takeaway?  Don't refinance your property or take out a home equity loan.  If you did, however, and it's too late now, then figure out how to pay your mortgage, or be prepared for a lawsuit and an ultimate judgment for the shortfall.  On the other hand, you can try to work it out with your lender.

You can try a credit counseling company (which by the way are financed by the credit card companies and banks), or call a lawyer.  We can usually do a workout with your lender and save you both a lot of money.

One thing you should steer away from?  Those quick, fly-by-night hucksters who promise to save your house from foreclosure.  If it sounds too good to be true, it is.

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Saturday, June 28, 2008 at 11:45 Comments Closed (0) |
 
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