Forclosure in California with HELOC, Deficiency Law
My question involves a foreclosure in the State of: California
I have been scouring the internet regarding the issue of Deficiency Law, and have become very confused. There seems to be two sides to the story depending on who you listen to, but there seems to be an active discussion on this forum, so I thought I'd throw my hat in.
I purchased a home using the typical 80/20 interest only for (in my case) 5 years. My "second mortgage" is a HELOC through Wells Fargo. I have never refinanced my first or second mortgage.
My house has lost nearly 50% of its value and I need to get out of the situation before it gets worse. I am considering a short sale, deed in lieu, or a foreclosure, though it seems a foreclosure is the best option.
The prevailing thought on this forum seems to be that because my HELOC was opened and used entirely for the initial purchase of my home, and because I have not refinanced it in any way, it will not be subject to a "deficiency judgment". Am I getting that right?
How confident can I be? Should I pay attention to anecdotal reports on the internet of banks and/or collection agencies pursuing CA residents for HELOC money?
I appreciate any input, thank you.
Re: Forclosure in California with HELOC, Deficiency Law
I assume you're talking about this thread. But I'm not clear as to whether you used the HELOC as a purchase money mortgage, or if you simply got a line of credit that you subsequently maxed out.
Re: Forclosure in California with HELOC, Deficiency Law
Hi. Thanks for the response.
I got the HELOC in the purchase process. It was used exclusively for the house at the time of purchase and was therefore maxed out. My understanding is that it is a "purchase loan". However my confusion comes from others saying that HELOC may never be purchase loans simply because they're HELOCs and not a regular "2nd Mortgage".
Re: Forclosure in California with HELOC, Deficiency Law
Have you looked at the language of the HELOC loan contract - does the contract state that it's a recourse loan?
Is it through the same lender as the primary mortgage? (If so, and the lender agrees to a short sale, that should apply to both of their loans.)
Re: Forclosure in California with HELOC, Deficiency Law
I will look into the HELOC loan contract.
Originally the first and second mortgage were through one company. Immediately after escrow closed the first mortgage was bought by Aurora Loan Services (which I understand is a branch of Lehman Bros.) This first mortgage is actually owned by Freddie Mac, I have just discovered.
The second mortgage was bought by Wells Fargo, and it takes the form of a HELOC. I have found a letter from Wells Fargo stating that their purchase of the loan does not change the original terms of the loan. I have yet to find whether those original terms deemed the loan recourse or non-recourse.
However, whether it is a recourse loan or not, I understand it is at least possible, if not likely, that it is covered under Califorina Law as a "Purchase Loan" and is therefore not subject to any sort of deficiency efforts. That is my primary question.
Re: Forclosure in California with HELOC, Deficiency Law
Quote:
Quoting
Misterboy
I will look into the HELOC loan contract.
Originally the first and second mortgage were through one company. Immediately after escrow closed the first mortgage was bought by Aurora Loan Services (which I understand is a branch of Lehman Bros.) This first mortgage is actually owned by Freddie Mac, I have just discovered.
The second mortgage was bought by Wells Fargo, and it takes the form of a HELOC. I have found a letter from Wells Fargo stating that their purchase of the loan does not change the original terms of the loan. I have yet to find whether those original terms deemed the loan recourse or non-recourse.
However, whether it is a recourse loan or not, I understand it is at least possible, if not likely, that it is covered under Califorina Law as a "Purchase Loan" and is therefore not subject to any sort of deficiency efforts. That is my primary question.
If you signed a "power of sale clause" then the loan can only be foreclosed as non judicial.
As aaron stated you need to read your original loan docs. If the second was recorded with your original deed you may be ok. However, some seconds I have seen are written as a personal loan in addition to the mortgage.
Aurora closed up shop to originations approx 18 months ago.
To find out exactly who owns the loans (not just the servicer) AND what types of loans they are you will need to pull your credit report from;
http://www.equifax.com/home/
This is the only bureau that will show you who actually owns the loan and NOT just who the servicer is
Re: Forclosure in California with HELOC, Deficiency Law
I do know for a fact that the 2nd mortgage was originated as part of the original loan/transaction. It was an 80/20 thing.
I also know that under "Purpose of Loan" it is checked "Purchase". Which brings me to my original question: my understanding is that under California law, I am protected against collection for all purchase loans on a primary residence. Is this not the case?
To answer your other questions, SCME Mortgage Bankers originated the loan and then sold it to Wells Fargo. My credit report states that Wells Fargo owes the loan and that the loan type is "Line of Credit".
What this boils down to is whether or not I'm protected under California Law because it is a "purchase loan". If someone can say "YES YOU ARE PROTECTED" or "YOU MIGHT BE PROTECTED DEPENDING ON X, Y, OR Z" or "NO, YOU ARE NOT PROTECTED" I would greatly appreciate it. I believe at this point I have all the relevant facts...I just need to know how those facts line up under the law.
Many thanks!
Re: Forclosure in California with HELOC, Deficiency Law
I am not a lawyer nor do i claim to be: but it is my understanding that if you have original loan and never refi the loan, than you are protected, because there is a law that was passed forgiving foreclosure of home starting in 2007 2008 and ending this year 2009 no responcibility for the balance of note!
Good Luck,
God Bless
Re: Forclosure in California with HELOC, Deficiency Law
Thanks Acip4u,
Yes, this is basically my understanding as well, however I have read things which cast this in doubt. I have been hoping to get a clearer response regarding this, but am not having any luck.
As far as the 2007-2009 thing, I think that may refer to the taxability of any loan forgiveness.
Re: Forclosure in California with HELOC, Deficiency Law
Warning: I'm just a CA property owner going through some similar stuff and have been trying to research the heck out of this stuff. Not a lawyer.
You should read up on CCP 580b, 580d, and 726. This is the stuff that dictates the Anti-Deficiency rules in California, as well as the One Action Rule.
Purchase money loans are covered in 580b. 580d says that if the lender uses non-judicial foreclosure, they cannot also seek a deficiency judgement. 726 states that the lender can choose only one form of action for recovery of debt.
There are a lot of intracacies here too though. For example, if the Senior and Junior lender are one in the same... and the Senior forecloses under the deed of trust thus "selling out" the junior, they are not able to then seek deficiency judgement on the junior because it is only due to their own action on the senior that caused the junior to lose their security.
But definately start reading up on the California Code of Civil Procedure (CCP).