SHORT SALE BONANZA

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During the next few months, short sales will sky rocket. Short Sales are sales of upside down houses for the market value. To make the short sale work the first and second mortgage holders must write down the loans to equal the true market value of the house. Since the first has first call on the funds, the second write down a much large percentage of its loan, often 80-90%. Seconds have been resistant to do so, in hopes that the First would foreclose because under current law, if the First forecloses and makes the Second worthless, the Second the right waive the deed of trust and sue on the note- for the full amount of the second loan.

However, under an amendment of CA Code of Civil Procedure 580, the second cannot get a deficiency judgment in any event on any loan, refinance, or other credit transaction that is used to refinance a purchase money loan, as defined, or subsequent refinances of a purchase money loan.

The law seems to limit these rules to new loans but I believe that holders of Seconds will be fearful that the law will be extended by the courts to all loans. If that happens the Second becomes worthless. I think that this threat will induce the seconds to take what they can get in a short sale.

For more information contact David DiJuliomailto:[email protected] or a broker that specializes in short sales.

DiJulio Law Group: Los Angeles real estate attorneys with more than 35 years of experience. Call 888-519-1613 or emal [email protected].

DiJulio Law Group

DiJulio Law Group won an Appeal on Foreclosure Law.

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The Court of Appeal in the Second District ( Los Angeles) said in a published decision issued on August 1, 2012 that modifaction of a note does not affect the limtation on the “Bank” from collecting more that the house is worth (i.e. no deficiency judgment.)

The court held:

“No deficiency judgment shall lie in any event after a sale of real property　.　.　.　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.” (Code Civ. Proc., § 580b.) Section　580b was “drafted in contemplation of the standard purchase money mortgage transaction, in which the vendor of real property retains an interest in the land sold to secure payment of part of the purchase price.” (Roseleaf Corp. v. Chierighino (1963) 59　Cal.2d 35, 42.) It also acts as a “stabilizing factor in land sales” and “prevents the aggravation of [a] downturn that would result if defaulting purchasers were burdened with large personal liability.” (Ibid.) The purpose of the statute causes it to be applied liberally and broadly. (DeBerard Properties, Ltd. v. Lim (1999) 20　Cal.4th 659, 663.)

Section 580b applies to the Promissory Note because Rocha retained an interest in the property being sold with the ability to foreclose on it upon nonpayment by the Weinsteins-albeit with lower priority than the first deed of trust. Because the property being purchased was used as security, this clearly falls within the definition of a　”deed of trust　.　.　.　given to the vendor to secure payment of the balance of the purchase price” to which section　580b applies.

“[I]n no event shall there be a deficiency judgment,　.　.　.　because the security has become valueless or is exhausted　.　.　.　after a sale under [a senior] trust deed.” (Brown v. Jensen (1953) 41 Cal.2d 193, 198.) In Brown, a property vendor who held a secondary deed of trust was denied relief outside of foreclosure even though the security had already been exhausted. One who issues a trust deed “assumes the risk that it may become inadequate.” (Id. at p. 197.) This is especially true “where he takes　.　.　.　a　second trust deed.” (Ibid.)

Here, the fact that a previous sale exhausted the security of the Promissory Note makes section 580b applicable. In this case, like in Brown, the holder of the first trust deed exhausted the security in a foreclosure sale. The statute places the risk of the devaluation or exhaustion of the security on Rocha, because he “[took]　.　.　.　a　second trust deed.” In short, section 580b applies to the Promissory Note because the transaction is a seller financed transaction, and the security was exhausted by a senior foreclosure sale.

For more information contact David DiJuliomailto:[email protected] .

DiJulio Law Group: Los Angeles real estate attorneys with more than 35 years of experience. Call 888-519-1613 or emal [email protected].

SECOND MORTGAGES CAN NO LONGER SUE AFTER FORECLOSURE ON THE FIRST

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The California Legislature has amended the rules for seconds suing after a foreclosure suit. Under current law, after foreclosure sale by the first, the second can sue for the note unless it was part of the purchase price. But starting January 1, 2013 the rules will be changed to prevent the seconds from suing on refinances too.

The law provides that no deficiency judgment shall lie in any event on any loan, refinance, or other credit transaction that is used to refinance a purchase money loan, as defined, or subsequent refinances of a purchase money loan

However there is an exception for refinances that had a cash out or a HELOC where additional funds were withdrawn,

These provisions would apply to a loan, refinance, or other credit transaction used to refinance a purchase money loan which is executed on or after January 1, 2013.

For more information contact [email protected] or go to DiJulio Law Group

SUMMARY OF THE HOMEOWNERS BILL OF RIGHTS

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Under the New California Homeowners Bill of Rights, the State of California has found that it is essential to modify the foreclosure process to ensure that borrowers have a meaningful opportunity to obtain available loss mitigation options.

The California Homeowners Bill of Rights which goes into effect January 1, 2013, has five major components:

  • Prohibiting “dual track” foreclosures that occur when a Bank continues foreclosure while also reviewing a homeowner’s application for a loan modification.
  • Creating a single point of contact for homeowners who are negotiating a loan modification.
  • Expanding notice requirements that must be provided to a borrower before taking action on a loan modification application or pursuing foreclosure; and
  • Allowing injunctions to stop all activiity until violations are corrected
  • Permitting civil penalties against Banks that file multiple, inaccurate mortgage documents or commit reckless or willful violations of law.

By prohibiting dual-tracking (refi and sale at the same time) this legislation provides borrowers with certainty that their loan application will receive full review and consideration before any foreclosure occurs. These requirements also provide the borrower with a legal remedy to challenge the actions of Banks that engage in dual-track or other material violations of law.

The Homeowner Bill of Rights also requires a single point of contact for borrowers seeking loan modification. This requirement will make loan Banks more accountable and prevent them from repeatedly transferring applications and phone calls to various departments and employees.

Under the new law, Banks must notify borrowers when a modification application is due, if foreclosure has been postponed and if a modification has been denied. Each of these new rules increases transparency and helps to ensure that borrowers are properly informed of the actions taken by a Bank before foreclosure activities begin.

Borrowers have a right to file private lawsuits under this new law to block foreclosure until the lender corrects any material violation. Borrowers can also receive treble damages up to $50,000 if Banks act intentionally or recklessly in violating the law. These provisions protect the rights of consumers, while allowing Banks to correct unintentional violations.

The new Bill of Rights also gives the homeowner the right to designate a lawyer or other representative to help in the loan modification and the foreclosure prevention process. Finally, the court can award a prevailing borrower reasonable attorney’s fees and costs in an action brought pursuant to this section

By David DiJulio:

For more information contact:

CALIFORNIA HOMEOWNER BILL OF RIGHTS

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On July 11, 2012, Governor Jerry Brown signed the California Homeowner Bill of Rights into law to bring fairness, accountability and transparency to the state’s mortgage and foreclosure process.

More than one million California homes were lost to foreclosure between 2008 and 2011-with an additional 700,000 currently in the foreclosure pipeline.
Seven of the nation’s 10 hardest-hit cities by foreclosure rate in 2011 were in California.

The California Homeowner Bill of Rights marks the third step in Attorney General Harris’ response to the state’s foreclosure and mortgage crisis.
The first step was to create the Mortgage Fraud Strike Force, which has been investigating and prosecuting misconduct at all stages of the mortgage process. The second step was to extract a commitment from the nation’s five largest banks of an estimated $18 billion for California borrowers. The settlement contained thoughtful reforms but are only applicable for three years, and only to loans serviced by the settling banks.

Two key bills of the Homeowner Bill of Rights contain significant mortgage and foreclosure reforms. The major provisions of

AB 278 (Eng/Feuer/Mitchell) and SB 900 (Leno/Corbett/DeSaulnier/Evans) include:

Dual track foreclosure ban:Single point of contact:Enforceability:Verification of documents:
The recording and filing of multiple unverified documents will be subject to a civil penalty of up to $7,500 per loan in an action brought by a civil prosecutor. Enforcement will also be allowed under a violator’s licensing statute by the Department of Corporations, Department of Real Estate or Department of Financial Institution. Borrowers will have authority to seek redress of “material” violations of theCalifornia Homeowner Bill of Rights. Injunctive relief willbe available prior to a foreclosure sale and recovery of damages will be available following a sale. Mortgage servicers will be required to designate a “single point of contact” for borrowers who are potentially eligible for a federal or proprietary loan modification application. The single point of contact is an individual or team with knowledge of the borrower’s status and foreclosure prevention alternatives, access to decision makers, and the responsibility to coordinate the flow of documentation between borrower and mortgage servicer. Mortgage servicers will be required to render a decision on a loan modification application before advancing the foreclosure process by filing a notice of default or notice of sale, or by conducting a trustee’s sale. The foreclosure process is essentially paused upon the completion of a loan modification application for the duration of the lender’s review of that application.

The Homeowner Bill of Rights goes into effect on January 1, 2013.

For more information contact: DiJulioLawGroup.com

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