Legal Responsibility after Foreclosure or Short Sale?

Question

What are the ramifications after a foreclosure or Short Sale for a homeowner losing the home? Which do they owe the most on after the 2 choices ? Calif.

Thanks

Answer 1

It depends on whether the home was purchased using a Trust Deed or a Mortgage.

Contrary to conventional wisdom, a Mortgage is not the home loan.  It is the document that tells the banker, "If I don't make my payments on this property, then you can foreclose on me".   That's what a Mortgage really is.  And from a practical perspective, a Trust Deed does basically the same thing.  However, there is one large difference between the two.

Under a Mortgage, if a lender begins the foreclosure process, it must take place in a court of law.  This is a very expensive procedure for a lender.

Conversely, under a Trust Deed, a lender may initiate sale of the property without going to court, thus avoiding a big legal bill.  Most lenders use Trust Deeds for this very reason.

For you to owe the rest of the money after a short sale or foreclosure, a lender would need to obtain a "deficiency judgment" through a court of law.  Again, the lenders would rather avoid court costs.

Soooo....if your lender is already in court to foreclose under the auspices of a Mortgage, they'll think, "I'm already in court for this property, so I might as well get a deficiency judgment while I'm here".  It's almost automatic.

BUT...if your lender is selling the property out from under you via a Trust Deed, then your lender will likely say, "Hey.  I'm not in court for this, and I don't want to go to court for this, so I'm not going to get a deficiency judgment against this guy, because that would require me to go to court!"  This is what happens the vast majority of the time when the home is secured by a Trust Deed.

In fact, I've never seen anyone have a deficiency judgment brought against them when they lost a home through a Trust Deed, and I've seen quite a few of these things happen.  I'm not saying it can't happen, I'm just saying that I've never seen it or even heard of it.

Find out if the foreclosure is taking place via a Mortgage or a Trust Deed.  That should answer your question for you.