- California is a Non Judicial State. This means foreclosures take place through Notice of Default and Notice of Trustee Sale. While it is true that this can protect a homeowner from a judicial action by a lender, that is only true IF the lender has entered into and achieved remedy through the non judicial process.
For example: If a 1st mortgage lender files foreclosure action and completes a foreclosure then that lender cannot pursue a judicial (law suit) action against the homeowner. However, if there is a junior lien (a 2nd or 3rd lien holder) who did not receive any remedy when the 1st mortgage forclosed, that junior lien holder CAN pursue a legal action or collections to achieve a remedy for their loss.
- A short sale allows a homeowner to work with all lien holders (1st lien holders and junior lien holders) to come to a negotiated settlement and thereby reduce the chances of any additional liability once the short sale is completed.
- California is a non-recourse State. Mortgages used to purchase a home are limited such that any lender holding a purchase money mortgage lien, even a junior lien holder in the situation listed above) cannot pursue the loss by coming after the homeowner. They can only pursue the loss through the real property itself. For this reason, junior lien holders of purchase money mortgages are more likely to negotiate cooperatively during a short sale as they will have no other remedy should the short sale fail.
- The Truth In Lending and Fair Debt Collections Practices Act does not apply to purchase money mortgages. It only applies to home equity lines, lines of credit and certain refinance loans. In those instances where it does apply it can be very helpful to have mortgages and liens examined by a competent legal professional who specializes in the TILA and FDCPA to see that the terms of the mortgages were not in violation of your rights under these Federal Consumer Protection Laws.
- A short sale can be pursued BEFORE a homeowner misses a payment - it is not necessary to wait until you have received a Notice of Default from a lender to pursue a short sale to solve your problem.
In the past, lenders would refuse to work with homeowners until they had “missed 3 payments”. This is NO LONGER TRUE. It is always in the best interest of the homeowner to be pro-active in dealing with financial distress or expected lack of ability to coninue making payments on their mortgage.
- The lender is not obligated to accept a short sale. While it would be nice if homeowners could receive guarantees that a short sale will succeed, the end result is entirely dependent ont he lender’s cooperation. Never believe anyone who promises that they can complete a successful short sale. Honest negotiators, realtors and investors always say that they cannot guarantee outcome but that they will do their best - and even a high success rate at completing short sales is no guarantee that any one short sale will succeed.
