Foreclosure.Shortsale

The answer is very complex as there are no clear rules of engagement. What rules there are change almost daily and so does your exposure to taxes, charge off, collections, arbitration and court litigation for non-purchase money transactions tied to real estate. When looking for the answer, we must also identify from what perspective the question comes from. A short sale could result in a deficient amount in a judgment that would expose you to the practice of collections from junior lien holders. A foreclosure will prohibit a federal loan for at least 2 years, but will not result in a charge off event on the first mortgage, or expose you to the practice of collections.

A Bankruptcy will prohibit a federal loan for as long as 4 years, and will wipe out any debt that you might have been exposed to through the practice of collections prior to a foreclosure and/or short sale. You must avoid the taxable consequences involved. You cannot discharge taxes, but you can discharge the debt that will result in a 1099 taxable event.

All of the above have negative consequences to your credit. All can be recovered from.

To think only of the best, to work only for the best, and expect only the best. To be just as enthusiastic about the success of others as you are about your own. To forget the mistakes of the past and press on to the greater achievements of the future.

To wear a cheerful countenance at all times and give every living creature you meet a smile. To give so much time to the improvement of yourself that you have no time to criticize others. To be too large for worry, too noble for anger, too strong for fear, and too happy to permit the presence of trouble

Though a foreclosure and bankruptcy will certainly damage your credit, the control you gain is even more important, Before the sale the law allows for ways to catch up on missed payments, sell the property or modify the loan and possibly stop the second mortgage as non-payable. By stopping or controlling the timing of the foreclosure you can avoid losing the property, being sued after losing the property and paying taxes on forgiven or lost homes. A foreclosure sale can and does affect your credit rating so strongly that filing a bankruptcy is better for your credit rating by removing your debts that are unsecured. The worst credit credit history is one where you are over your credit limits, have a payment history littered with late payments, even as the debts are being paid and credit histories with judgments and liens. Eliminating your debt through bankruptcy and starting over is much better for your credit score than having unpaid creditors on your credit report showing bad debt that has been charged off, in collections and growing. It is even gaining a new name,”Zombie debt” as it is becoming more prevalent gaining a new name. Practices now include re-reporting of the debt to extend the statute of limitations giving collection agents more leverage to collect. Don’t fall into the “Zombie Debt” trap.

If you are upside down in your mortgage, can’t sell, can’t refinance, can’t modify the loan, consider bankruptcy to control lawsuits, eliminate credit card debt and repay taxes in default.

Whatever you do DO NOT borrow more money you can’t pay back just to try to hold on or catch up.
Don’t let demeaning insults and impossible demands put you further and further behind. We can help with debt management, loan modification and bankruptcy through our partner referral program. We have assembled a leading team of Attorney’s, Accountants, Debt Negotiators and Arbitrators that are on your side.
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Anti-Deficiency Legislation (Foreclosure): When the lender agrees to accept less than what is owed to release its lien to allow the short sale to close, the release of the lien is not the same as releasing the borrower from personal liability on the debt. CA has anti-deficiency legislation under CA Code of Civil Procedure, Section 580. CCP 580d says if a lender forecloses by a non-judicial foreclosure, then that lender cannot sue the borrower for any deficiency when it later re-sells the property and doesn’t get enough proceeds to pay the debt in full. CCP580b says if the loan was part of the original purchase price of a residence for not more than 4 families and the borrower was occupying all or part of the property, and the loan was never refinanced (usually referred to as a “purchase money” deed of trust), then the lender also cannot sue the borrower for a deficiency.

Recourse v. Non-Recourse: Typically, when you’re doing a short sale, the first deed of trust holder is looking to foreclose or already has a foreclosure pending. The junior lien holder has to decide is there enough equity to justify incurring the expense to foreclose. If the answer is yes, and it were to foreclose, then there’s no deficiency. If the answer is no and the first deed of trust holder were to foreclose, then the lien of the second deed of trust holder is extinguished at the foreclosure sale and the obligation of the borrower to the lender becomes unsecured (the junior lien holder is now a “sold out” junior lien holder). If the junior lien holder loan was part of the original purchase price of a residence and not refinanced, then the sold out junior lien holder cannot sue for a deficiency (which makes it a “non-recourse” loan). However, many times the junior lien debt was refinanced or was added after the purchase, and then the holder can sue for a deficiency (which makes it a “recourse” loan).

In the past, if you were negotiating on a short sale with a junior lien holder on a debt that was a recourse debt (not a purchase money deed of trust), then the goal was to get the lender to confirm in writing that they were releasing the borrower from personal liability on the debt in addition to releasing the lien. Unfortunately, this was hard to get done. The consequence to the borrower without a release of personal liability on a recourse loan was that they were still liable for the unpaid balance.

Anti-Deficiency Legislation (Short Sale): CCP 580e has been added to the CA Code, and was modified in July of 2011. Now if a lender (senior or junior lien holder) consents to a short sale for a residential property of 4 units or less in CA, they are explicitly giving up the right to sue for any deficiency and they cannot obligate the borrower to pay funds beyond any sales proceeds at the close of the short sale escrow or later.

Interaction with Bankruptcy: If the borrower will have personal liability on a junior lien, and/or has other debts that may require the borrower to file bankruptcy, then depending on the borrower’s income he may need to file the bankruptcy before any short sale or foreclosure sale to be eligible under the Means Test for Chapter 7 bankruptcy. I recommend such borrower contact a qualified bankruptcy attorney like myself at least 60 days or more before any foreclosure sale or short sale to make that determination. They can always pursue the short sale after the bankruptcy, but bankruptcy court approval is required if the bankruptcy case is still pending.

Tax Consequences: Keep in mind that there can be gains tax and cancellation of debt tax consequences arising from a short sale or foreclosure. Your client should be consulting with their tax advisor to confirm those consequences, if any. If your client will incur a cancellation of debt tax consequence, they should confirm with their tax advisor if that consequence would be eliminated with a bankruptcy filing before the short sale or foreclosure sale.

I hope this information assists you. If you have any questions about it, give me a call. In the meantime, if you run across anyone who needs to look at bankruptcy as an option I’d greatly appreciate your referral.

Gary Gale
Bankruptcy Attorney
Law Office of Gerald L. White
111 Woodmere Road, Ste 240
Folsom, CA 95630
Office: 916-985-3330
Email: jerry@gwcreditlaw.com

In addition to Experian’s vast credit information resources, Cross View collects information from eFunds’ Debit Bureau, the country’s largest single source for debit data, containing more than 2.7 billion records related to checking account opening and closing information, checking account collections data and overdraft histories, and check order histories. The repository is updated with approximately 1.7 million records each day, receiving information from more than 82,000 retail locations, 86,000 financial institution locations, and other reputable sources. “We are very excited that Cross View will make it possible for more consumers to obtain offers of credit when they had previously been denied,” said Mary Pajot, vice president of Experian information solutions. “Before Cross View, recent immigrants, newly divorced or widowed individuals, and students had limited access to credit products and offerings because their credit files contained a limited amount of information. With this solution, credit grantors now have the ability to better serve consumers by examining their credit data along with checking account information and other related financial data – areas where they may have already shown themselves to be financially responsible.” Cross View is a predictive and customizable resource, which reduces risk for credit grantors while enabling them to approve more prospects and offer greater credit privileges to deserving consumers. It provides real-time access of both credit and debit data, plus prescreen segmentation, account review overlays, and account monitoring triggers.

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Credit has become one of the most important governing aspects of modern life as we move
into the future. It is used as an indicator of your moral character and as a tool to getting the job
that you are trying to qualify for as increasingly prospective employers use your credit report
to qualify you for a job. It is used to screen you for apartments and rental homes. It is used
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Don’t wait and be surprised by what your report says about you.

Did you know that in a national poll 82% of all working adults have credit related derogatory
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If during this past year you thought about how credit related issues affected you in 2011. I remain optimistic for a brighter future for you in 2012 if we can just get you enrolled in one of our many programs designed to help you attain your goals.

Call today and let us discuss the possibilities open to you.

Give yourself the gift of GOOD CREDIT!

Three Requirements for Debt Management:
Two or more accounts (credit cards, loans)
A source of income
A desire to get out of debt.
If an individual meets these simple requirements, they may be a good candidate for a debt management plan.

Tres Requisitos para la Gestión de Deuda:
Dos o mas cuentas (tarjetas de crédito, prestamos)
Deuda a Ingreso de 20% o mas
Ingreso mensual
Si el individuo califica, podria ser un buen candidato para el programa de manejo de deudas.

ASSETS $___________________

(B)- How much do you owe? Try to come up with the total amount owed which would include credit cards, loans, unpaid bills, etc.

DEBTS $____________________

SUBTRACT DEBTS FROM ASSETS $____________________________

-If your assets are more than your debts – you are off to a good start towards financial freedom.
-If your debts are more than your assets – you need to plan a way to pay your debts gradually. You need to make a realistic plan for repaying them, which might include a Debt Management Plan for your unsecured debts.

Give us a call for more free information.