GAVE MY HOUSE KEYS TO THE BANK — NOW I’M BEING SUED! Homeowners Facing Foreclosure Beware

November 4, 2011 By 1 Comment
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You are unable to make your mortgage payments.  You received a foreclosure notice from the bank so you surrendered your keys, moved out, and canceled your homeowner’s insurance.  You think you are off the hook.  So, how can you be sued for problems on your vacant property?

The problem is that while the bank gave notice of pending foreclosure, the homeowner is still liable for any problems on their property until the title transfers to the bank.  Complaints others make to the City, County or Homeowners’ Association against your property, i.e. not being maintained; nuisances like kids throwing parties; or homeowner fees still due, are examples of the homeowner’s continued personal responsibility.

If you are still on title, you are still personally liable for all criminal liability for failure to maintain the property; civil liability for any person injured on your property; still owe homeowner fees; and more.

The solution is simple.  Until you are off title, you are still liable.  As long as you are on title, you need to keep paying your homeowner’s insurance premiums.

The best way to solve the problem if the bank does not complete the foreclosure on your home is to record a DEED IN LIEU OF FORECLOSURE.  However, in some states, the bank must approve the Deed In Lieu.  California is not one of those states, but there are issues to be considered which are too are lengthy for this blog for which you should obtain legal counsel.

A Deed In Lieu of Foreclosure is a deed from the owner to the first or second deed of trust or mortgage holder.  It should be a Quitclaim Deed which bears the title, “DEED IN LIEU OF FORCLOSURE,” next the title Quitclaim Deed.

To obtain more information about Deeds in Lieu, read the book:  MORTGAGES, DEEDS OF TRUST AND FORECLOSURE LITIGATION, CONTINUING EDUCATION OF THE BAR, CALIFORNIA OAKLAND, CALIFORNIA, January 2010, Chapter Title, Debtor’s Strategies, section 7.11, page 523; 7.127.21, page 524 and 7.21A, page 530.

To find more information on the web try doing a search using the phrase, “Deed In Lieu.”

Filed Under: Real Estate Law, Short Sales and Foreclosures Tagged With: , , , , ,

FORECLOSURE DANGERS: Beware of Scams to Collect on Purchase Money 2nd or 3rd Deeds of Trust

September 2, 2011 By Leave a Comment
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Senate Bill 931 which enacts California Code of Civil Procedure §580e became effective January 1, 2011.

C.C.P. §580e prohibits recovery of a deficiency on a first deed of trust following a short sale of real property of four (4) units or less because C.C.P. §580e(a), read, in part: “….Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as FULL PAYMENT and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.”  (Emphasis added).

This means you should not get a 1099-A or 1099-C from the holder of the first deed of trust following a short sale!  For more information on 1099-A or 1099-C, please read our blog: If You Are a Distressed Homeowner Facing a Short Sale or Foreclosure, Read This Article!!

What C.C.P. §580(e) does not address are second deeds of trust or other non-purchase money loans on real property.  Lenders with second or third deeds of trust and/or lines of credit may still, and have been, suing short sale borrowers to recover monies borrowed.

The question then becomes, what is the state of the law for when both the first and second deed of trust were used to purchase the property? Interestingly in 2009, the Northern District of California, ruled that a second deed of trust, made concurrently with a first deed of trust for the purchase of real property is a purchase money loan within the meaning of C.C.P.  §580(b).  See Herrera v. LCS Fin. Servs. Corp. (ND Cal. 2009)

BEWARE OF SCAMS TO COLLECT ON

PURCHASE MONEY 2nd or 3rd DEEDS OF TRUST

The Herrera case holds that purchase money 2nd or 3rd deeds of trust are subject to anti-deficiency law as outlined in C.C.P. 580c.  Some lenders are attempting to collect on junior purchase money deeds of trust after foreclosure or demand a deficiency in a short sale.

The lender is not entitled to demand a deficiency after foreclosure on a purchase money 2nd or 3rd deed of trust. 

Any attempt to collect on an uncollectable debt, without the collection agency stating re-payment is not mandatory, may be grounds to sue the collection agency for violation of California Fair Debt Collections Act.

 STRATEGY TO REQUEST MINIMUM OR NO DEFICIENCY ON A PURCHASE MONEY 2ND OR 3RD DEED OF TRUST UNDER A SHORT SALE

As a realtor, if you are negotiating the short sale with a junior purchase money deeds of trust, you must make it clear to the lender that through the short sale, the lender is actually saving: (1) months of non-payments on the loan, (2) months of vacancy, (3) costs of foreclosure proceedings, and (4) costs of resale.  In addition, there is no right to a deficiency after a foreclosure.  Disclosure of these realities should create a stronger bargaining position to facilitate a short sale for a minimum or no deficiency.

Our office specializes in real property law and a significant portion of our business in this area comes directly from other attorneys and local area real estate professionals. For more information  regarding the above or with other legal questions,please contact our office:

Law Office of Howard L. Hibbard

http:/hlhibbardattorney.com/contact us

or call (650) 347-5010 for a free consultation

Filed Under: Real Estate Law, Short Sales and Foreclosures Tagged With: , , , , , , , ,

IF YOU ARE A DISTRESSED HOMEOWNER FACING A SHORT SALE OR FORECLOSURE, READ THIS ARTICLE!!

July 11, 2011 By 2 Comments
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Serious tax consequences may result from either a short sale or foreclosure. As with most IRS information, it is not an exciting read, but you could save yourself thousands of dollars in taxes.

Many distressed homeowners who have left their homes or lost their home by foreclosure will receive a 1099-A, 1099-C or both from the lenders. Lenders are required to file the 1099’s with the IRS and mail a copy to the borrower. Depending on the form you receive, you could be liable for thousands of dollars in additional taxes.

What do these tax forms mean? By definition, a 1099-A is for “Acquisition or Abandonment of Real Property” and a 1099-C is for “Cancellation of Debt.” This article outlines the circumstances in which you may receive a 1099-A and/or 1099-C. If you do receive a 1099-A or 1099-C, it is important to contact your accountant or tax preparer immediately to discuss the tax consequences and any possible exemptions.

1099-A:

The lender’s responsibility to file the 1099-A is triggered when the lender acquires an interest in the property that is the security for the loan. It does not matter if the interest acquired represents a full or partial satisfaction of the debt.

A 1099-A must be filed in three (3) situations:

1. Foreclosure: Regardless of whether the lender is the first, second or third mortgage holder, upon foreclosure of the property, all lenders are required to file a 1099-A for the amount of the debt. The 1099-A is required if there is a deficiency and the lender does attempt to collect the deficiency from the borrower. The lender is required to file if they know or have reason to know the foreclosure has taken place.

2. Abandonment: If the borrower intends to, and has permanently given up possession and use of the property, the lender must file a 1099-A. If a foreclosure will be performed within three (3) months of the abandonment by the borrower, the lender may wait to file the 1099-A until the date of the foreclosure sale. If a foreclosure is not scheduled within three (3) months of the abandonment, the lender must file the 1099-A within three (3) months of the date of abandonment.

3. Claim and Delivery: Claim and delivery is a legal action to recover property, for 1099-A purposes, only property that is security for a debt. A 1099-A is required if the property is used for business, trade or investment purposes. Property solely for personal use does not trigger the requirement to file a 1099-A.

1099-C:

The lender’s responsibility to file a 1099-C is triggered when the lender acquires an interest in the property that is the security for a loan and the lender forgives, cancels or discharges the debt. Canceled debt must be reported as “gross income” and the borrower will be required to pay tax thereon unless the debt qualifies for an exclusion or exception.

1. Debt cancellation: Lenders who cancel, forgive or discharge any debt for $600.00 or more are required to file a 1099-C with the IRS.

2. Foreclosure: Regardless of whether the lender is the first, second or third mortgage holder, upon foreclosure of the property, all lenders are required to file a 1099-A. The 1099-C is required if there is a deficiency and the lender does not attempt to collect the deficiency from the borrower. If the debt is canceled, the lender need only file a 1099-C and not a 1099-A.

When a borrower receives a 1099-A or 1099-C, the IRS has already received the form. You must address the tax issues immediately. Failure to do so may result in penalties and fees.

If you have any questions regarding short sales and foreclosures, more information is available on the short sales and foreclosure page of this website. If you are tired or reading information on the internet and would like a free, in person or over the phone consultation with one of our attorneys, please contact us.

Filed Under: Real Estate Law, Short Sales and Foreclosures Tagged With: , , , , , , , , , , , , , , ,

Chapter 13 Bankruptcy Debtors: How to Eliminate 2nd and 3rd Mortgages by Lien Stripping!

May 26, 2011 By Leave a Comment
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Chapter 13 Bankruptcy debtors have the amazing opportunity to save hundreds of thousands of dollars. See Zimmer v. PSB Lending Corporation (In RE: Zimmer) 313 F3d 1220 (9th Cir. 2002). Debtors can strip the Second and Third Mortgages (“Junior Mortgages”) on their home with a relatively straightforward motion to the Court. Stripping the Junior Mortgages means that for the purpose of the Debtors’ Chapter 13 bankruptcy plan, the Junior Mortgages are valued at zero (0) and no payments will be made!!
After completing the Plan payments, Debtors can obtain a judgment voiding the Junior Mortgages. This means that the Debtors will have absolutely no further obligation to pay the Junior Mortgages… ever!!
Generally, a mortgage is a secured debt because it is attached to real property, however, if the value of the property has declined to the point where the value is less that the amount owing on the first mortgage, the Junior Mortgages become unsecured.
In order to strip a second mortgage, several simple conditions must be met:
(1) The property must be the Debtors’ primary residence; and
(2) The current value of the Property must be less than the amount due on the First Mortgage.
If both of these conditions are met, the Debtor can make a motion to have their Junior Mortgages stripped! You may visit the Northern District Bankruptcy Court website for more information and guidelines.
Our office specializes in preparing Lien Strip Motions and a significant portion of our business in this area comes directly from other attorneys.
For more information regarding Lien Strip or other Bankruptcy Issues
or with other legal questions, please contact our office:
Law Office of Howard L. Hibbard
http://hlhibbardattorney.com/contact-us
or call (650) 347-5010 for a free consultation
Lisa K. Kehe, Esq.

Filed Under: Bankruptcy, Real Estate Law Tagged With: , , , , , , , , , , , , , , ,
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