KORB LAW GROUP REAL ESTATE LAW BLOG

Comparing Loan Modification, Short Sale, and Foreclosure

By: Richard E. Korb[1]

©2010 RICHARD E. KORB

With unemployment rates remaining high and the economy struggling to recover from the great recession, many Americans are stuck in a daily struggle to meet mortgage payments and keep their homes. While foreclosure is considered the standard means for dealing with delinquent payments, you should be aware that other, better options may exist for you if you are one of the many dealing with financial struggles. This paper will briefly examine the process of foreclosure and why it should be avoided if possible before introducing two alternative options to foreclosure—loan modification and short sale.

Foreclosure

Foreclosure is the process by which your lender (typically a bank) sells your home when you fail to meet payments. Money made from the sale of your home goes to pay off the lender, then to any additional parties owed money, and finally, if there is excess, to the evicted borrower. However, one should keep in mind that with the depressed housing market, it is very unlikely that the sale price of your house will exceed the amount of your debt—meaning you will be unlikely to receive any money.

Unlike the two alternatives to foreclosure, this method of removing your debt is forced by the lender and requires no agreement between you and your lending institution beyond the loan documentation you originally signed. Once you become delinquent on payments, or default on your loan, your lender has the legal basis to begin the process of foreclosure. This can either be carried out via judicial foreclosure or foreclosure by power of sale or non-judicial foreclosure.

The primary distinction between these two types of foreclosure is that in a judicial foreclosure there will be a short court proceeding and the court will oversee the sale of your house. A non-judicial foreclosure, on the other hand, is where the property is sold directly by the mortgage holder without the oversight of the court. Because court is avoided, non-judicial foreclosures are usually much cheaper and faster processes for all parties involved. However, non-judicial foreclosure is only an option if your mortgage is really a “deed of trust”.

Aside from the emotional stress that can accompany the process of foreclosure, one of the biggest negative impacts is the result it will have on your credit score. Record of foreclosure will make it harder for you to get loans in the future and will likely lead to higher interest rates demanded by banks as they will perceive loaning to you as more risky.

Fortunately there are two alternate options that may be available to you if you are having difficulty meeting payments and are worried about a possible foreclosure. With either of these options, you avoid scarring your credit score with the record of a past foreclosure. However, both options require that you reach an agreement with your lending institution.

Short Sale

In a short sale, your bank agrees to allow you to sell your house for less than the amount you still owe on your loan.  Lenders may agree to short sales if they believe that letting you sell your house for an agreed upon price will result in losing less money overall than waiting for you to make payments or having to pay for the process of foreclosing upon your home themselves.

The difficulty of achieving the negotiation of a short sale with your bank is, of course, that you need to have an offer on your home that meets the banks standards before you can really begin negotiating the possibility of the bank allowing the short sale. Moreover, you probably won’t be able to negotiate a short sale if you have multiple lenders, such as home equity lines of credit etc., because these secondary lenders are not likely to benefit from the sale.

If a short sale is a possibility for you, there are two important details that you should keep be aware of. To begin with, the difference between the amount that you owed on your loan and the amount you pay the bank from the short sale will be treated as income and you will be taxed.  You can avoid being taxed on the deficiency amount if you can prove to the IRS that your total debt was greater than your total assets at the time of the short sale.

This is referred to as being legally insolvent. Finally, in negotiating with your lender to reach a short sale, be sure that agree to accept the offered sale price without seeking a deficiency judgment. If you do not make this stipulation clear, there is the possibility that the lender could go back on the agreement and sue you for the amount that you still owe. If this “deficiency judgment” were to take place, it would negatively affect your credit score.

Loan Modification

If short selling is not an option for you or you want to attempt to keep your home, you may be able to figure out a more affordable payment schedule with your lender through the process of loan modification, which can either mean extending the term of your loan or reducing the amount of principal or interest that you must pay.  The ability to refinance will vary from lender to lender, but recent legislation, such as The Homeowner Affordability and Stability Plan, has made it easier for certain people to qualify for modification, especially if your loan is owned by Fannie Mae or Freddie Mac. If you are hopeful that your financial situation will improve in the future, modifying the structure of your payment schedule can be a way to reduce stress in the short run and work to keep your home.

[1] RICHARD E. KORB is a seasoned attorney (and a Cal/Hastings Alum) with 30 years of legal experience in business, real estate, contracts, bankruptcy and more. Over his legal career, Richard has successfully litigated, negotiated and resolved over 300 cases for individuals and companies of all shapes and sizes. Richard leverages his experience to assist individuals and small-to mid-sized companies with a broad spectrum of legal matters.  In addition to his legal practice, Richard is also court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts. ©2010 RICHARD E. KORB.

Understanding Judicial And Non-Judicial Foreclosure In California

By: Richard E.Korb[1]

Foreclosures come in a small variety of forms. The most common form of foreclosure in the United States, until the mid-19^th century, was judicial foreclosure. Judicial Foreclosure was eventually seen as too expensive and time-consuming, so lenders asked state legislatures for a faster, more efficient method of foreclosure. Non-judicial foreclosure, foreclosure with extremely minimal court oversight, was created and is still widely used in America, including California.

What exactly is Judicial and Non-Judicial Foreclosure?

Judicial Foreclosure – Foreclosure through the courts. Lenders begin the foreclosure process by suing the defaulting borrower in state court. The lender accomplishes this by filing a notice of Lis Pendens and a compliant with the court. If final judgment is rendered in the lender’s favor, the property is auctioned to a new buyer.

Non-Judicial Foreclosure – Foreclosure without court intervention, with requirements established by state statutes. According to Civil Code 2924 A1, lenders begin the foreclosure process in California by making a diligent effort to give the defaulting borrower an NOD, or Notice of Default. If the borrower is unable to make payment after three months, authorized sellers can begin the auction of property by giving the borrower a Notice of Foreclosure Sale.

Differences between Judicial and Non-Judicial Foreclosure

Judicial and non-judicial foreclosures are fairly similar as far as results are concerned. If the lender is successful in foreclosing, an auction will be held to sell the property. The winner of the auction will receive the property’s deed; if no one purchases the property, the lender gets the property back. The defaulted borrower will be evicted for the new owners.

The major difference between the two is in the amount of judicial oversight. In judicial foreclosure, a trial is held to verify that the borrower has defaulted and the property is auctioned by the court’s employees. In non-judicial foreclosure however, the lender sends the borrower a NOD. The defaulting borrower will have three months to cure, or pay back the money owned. After three months, the lender can then send a Notice of Foreclosure Sale to the borrower before holding the auction. Lenders can seek foreclosure in non-judicial foreclosure without suing the borrower because in a non-judicial foreclosure, the deed of trust on the property comes with a power of sales clause. A deed of trust is a document which transfers legal ownership of property from lender to borrower after the latter has paid off the mortgage. The power of sales clause allows the lender to foreclose the property if the borrower defaults and is unable to fulfill his or her end of the contract (paying off the mortgage).

The majority of foreclosures in California are non-judicial. Lenders prefer non-judicial over judicial foreclosure because the former is less expensive and takes less time; there is no trial required for a non-judicial foreclosure, and, assuming there are no extensions, the lender can expect the foreclosure to be over in about 111 days. Judicial foreclosures, with its extensive paperwork and court appearances, can take awhile for the courts to process.

If a foreclosure in California is judicial, either the deed does not have a power of sales clause, the borrower has sued the lender, or the lender is seeking a deficiency judgment. A deficiency judgment results in the borrower paying for the difference between the mortgage owned and the mortgage paid in the auction. A lender would only want a deficiency judgment however, if the value of the property was less the market value when the property defaulted. In other words, a deficiency judgment would only be necessary if the auction failed to cover the mortgage.  Deficiency judgments may not be obtained if the property in foreclosure was sold through a non-judicial public sale.

In addition, a house that has been foreclosed through a judicial foreclosure has a right of redemption. This right means that, after a period of time, the defaulted borrower can buy his or her property back from the person or persons who bought it at foreclosure. In California, the waiting period for redemption is 3 months to one year, depending on whenever or not the public sale from the foreclosure was enough to pay off the secured debt. Most lenders will not want defaulted borrowers to be able to redeem their foreclosed house, as this may affect the sales auction if buyers discover that the defaulted borrower may contact them in the future.

The most important difference between the two types of foreclosures for borrowers, though, is that in judicial foreclosure the lender sues the borrower while in non-judicial foreclosure, the borrower is the one expected to bring the foreclosure to court. With judicial foreclosure, the lender is suing the borrower for breach of contract when the borrower defaults. In non-judicial foreclosure, the borrower sues the lender for incorrectly applying foreclosure laws.

Why You Should Care

Since most foreclosures in California are non-judicial, the borrower has to be the party which brings court oversight to the foreclosure process, if a court is to be involved at all. With the subprime mortgage crisis of 2009, many lenders and banks were foreclosing at an unprecedented rate. Such haste resulted in some illegal foreclosures, especially if lenders sold the mortgage to a third party or if the lender neglected a step in the foreclosure process. With so many homes being foreclosed and with so little judicial oversight, many borrowers were often unaware if their lenders were improperly foreclosing them.

If you have any questions, please contact real estate and foreclosure attorney Richard Korb (in Berkeley-Oakland-Walnut Creek) for a free consultation and further advice on foreclosure law at 510-524-0903.

[1 RICHARD E. KORB is a seasoned attorney with 30 years of business, real estate litigation and foreclosure experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, bankruptcy and general civil law and he has drafted and negotiated over 250 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters.  In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts. ©2011.

Facing Foreclosure In California? The Pros & Cons of Loan Modification, Short Sales and Foreclosure

By: Richard E. Korb[1] You’re likely reading this because you or someone you care about is experiencing financial hardship. You’re also likely a property owner, and like many from your generation saw home ownership as living the American Dream. But now, you like so many others face some very stressful decisions concerning the future of your home.

From 2006 to 2009, the US housing market witnessed a 30% decrease in real estate values and is expected to continue to drop by another 5% in the upcoming year.[2] Not only has this recession been the worst in recent memory, causing many individuals losing their jobs, but it has been compounded by unethical lending practices – resulting in you the homeowner coming up short when the mortgage payments are due. So what do you do when you can’t meet your mortgage?

At this point, you are left with three options: (1) refinance your mortgage, (2) short sale your property or (3) to foreclose. These options can be confusing and intimidating so let’s take a moment to go through them one at a time, discussing what they mean, the pros and cons, and the next steps to get you started down that road.

LOAN MODIFICATION

Loan Modification is an attempt to change one or more of the terms of your mortgage because of an inability to meet current payments due to job loss, injury, variable interest rate reset, etc. The goal is to allow you to continue paying your mortgage but at a different interest rate, reduced monthly payment or a principal reduction of the loan. Most people refinance or modify their loan to lower their monthly payments in order to free up some cash. This can be accomplished many different ways (some of which are listed under How it Works).

Who can refinance? Really anyone with enough equity can modify their loan, and many people do. But what about those whose house prices have gone down, or whose income has decreased, or whose debts have multiplied? Refinancing for some will be more difficult than it is for others, and depends a lot upon homeowner priorities and market conditions. If your house is still an investment you’d like to keep and you have the means of repaying your mortgage, take some time to look at the following information regarding loan modification.

Certain factors in today’s market make refinancing more difficult than it once was. For starters, many people have a hard time refinancing because they have insufficient equity. Housing prices have dropped significantly and banks often require homeowners to have at least 5-10% equity in their home. Additionally, many individuals have lower incomes than before and your lender may decide that you do not have the means to afford your home. But do not lose hope; Congress and the Obama administration have attempted to make loan modifications easier through the HOPE for Homeowners Act and the Homeowner Affordability and Stability Plan. Please visit the links for more information.

If you are behind on your mortgage, want to keep your home and have equity, refinancing is the best option for keeping your home and credit score. But be wary, not only is refinancing up to the discretion of your lender but make sure that you can continue to make your payments with the new terms of the loan in order to prevent a similar situation in the future.

SHORT SALE

A short sale is an alternative to refinancing and similar to a voluntary foreclosure. In lieu of keeping your property, a short sale requires a real estate transaction in which a realtor sells the property to a buyer. Although your lender sells the property for a loss, this process is still cheaper and more pleasant than a foreclosure. The primary difference between a short sale and refinancing, for you, is that keeping the property is not necessarily a priority.

A major problem for short sales has been the inability of realtors to sell houses in the current market. Your lender may decide to foreclose instead, gaining ownership of the house in order to sell it later when prices are more favorable. Therefore, short sales are preferable if your house is both marketable and is currently worth a large part of what you owe to your lender.

What if you have more than one loan? If you have two or three mortgages on your home, a short sale will require approval of each lender. Unfortunately, when multiple loans exist a short sale is nearly impossible, as these other lenders have little financial gain.

For tax purposes, the IRS sees a short sale as income. When you first got the loan, you didn’t have to pay taxes on it because you were obligated to repay the loan. However, because some of your debt was forgiven, this is seen as income on which you owe tax.

After agreeing to a short sale with your lender, the most important decision you can make is in choosing the right realtor to execute the short sale. In many cases, the successful execution of the short sale rests squarely on the shoulders of an experienced realtor. With that in mind, there are many realtors who specialize in short sales so put in your due diligence in order to find the right representative.

NON-JUDICIAL FORECLOSURE[3]

In California, your lender is the legal owner of your home until you have satisfied your loan. Thus, a foreclosure occurs when you default on your mortgage and your lender decides to seize or sell the property. Guidelines for execution of the foreclosure are based on the power of sale clause found in the mortgage, or are otherwise carried out according to state law (see How it Works in the table below). Unlike refinancing or a short sale, your lender has the final say on the foreclosure and it is their goal to satisfy the loan balance. See the power of sale clause in your mortgage for more information. Remember, you can generally stop the foreclosure if the loan and the bank’s foreclosure costs are paid off anytime during the proceedings.

What are your options? Talk to your lender and explain your situation. It’s never too late to stop the foreclosure. In the mean time, it helps to put your house up for sale in order to get the best offer possible. This simple maneuver may also help you negotiate a short sale with your lender instead of a foreclosure. If a temporary problem is preventing you from paying your mortgage (e.g. injury or job loss), forbearance allows you to postpone these payments until you are able to pay. Another option of last resorts is to declare bankruptcy. Make sure to seek counsel if interested in this route.

If you are threatened with foreclosure, time matters and you need to get legal help. Legal counsel can determine if you have legal defenses against a foreclosure and can also aid with negotiations between you and your lender. Remember, foreclosures are governed by state laws that work on a timetable, and your options become increasingly limited as time progresses. Should you find yourself being foreclosed on, don’t hesitate to act. The longer you wait, the less opportunities both you and your attorney have.

The Home Affordability and Stability Act And Home Foreclosure

By: Richard E. Korb[1]

In 2008, the housing bubble ended and the housing market was in panic. Many homeowners were having their houses foreclosed with little room for recourse. In response, President Obama announced in 2009 that a new Home Affordability and Stability Act (HASA) would help stabilize the housing market. The HASA, also known as the Home Affordability and Stability Plan (HASP), is designed to give responsible homeowners suffering from falling housing prices access to low-cost refinancing. Homeowners can avoid foreclosure by adjusting their mortgage rates so that they can actually afford to pay off their loans.

Criteria for Benefiting from the Act

The act claims to benefit three million to four million homeowners whose homes have lost value compared to the value of their mortgage. To qualify for the HASA’s benefits, borrowers must meet the following criteria:

1. The mortgage loan must be for the borrower’s principal residence. The borrower must be living in the house as their primary place of living.
2. Mortgage loan is a conforming loan. A conforming loan is a loan which meets the guidelines of the government sponsored entities, Fannie Mae and Freddie Mac.
3. Mortgage loan payments must exceed 31% of borrower’s gross income.
4. The lender agrees to lower a mortgage loan rate of 38% or higher to a rate which is 38% or lower.

The act excludes a wide variety of people from receiving refinanced rates. Speculators, people who buy and sell homes for profit, do not qualify. Borrowers who have loans which are not owned, sold or regulated by Fannie Mae and Freddie Mac cannot receive lower rates. Borrowers who do not have any legal income, because they are unemployed, do not qualify. The HASA’s primary targets for aid are homeowners who are nearing default on their loans, but are still current on their payments.

Pros and Cons

Even if the borrower meets all the criteria of the act though, there are still other potential loopholes. The act is voluntarily for lenders; the lender doesn’t have to agree to anything. Of course, the act provides financial incentives for lenders who refinance under the act, but lenders still have the final word on who can refinance and who cannot.

Another aspect of the act which might hurt borrowers is that the HASA only affects home mortgages. If a borrower has “back-end debts”, other debts besides home mortgages, such as car loans, student loans or credit card debts, the borrower may still struggle to pay off the home mortgage, even with a lower mortgage rate.

If a borrower does qualify and the lender agrees, the borrower may benefit from a new fixed interest rate. The new rates will be spread over a 15 or 30 year period. The interest rate will be based on market rates in effect during the refinancing, as well as any associate prices or fees the lender believes is necessary. The refinancing will not reduce or change the amount owed on the loan; on the contrary, refinancing may result in a higher overall balanced owed. However, the monthly rate of the loan payment can be reduced and the number of years for mortgage repayment can be lengthened. While the borrower may have a higher overall balance at the end, the risk of interest accumulating is lower and paying off the mortgage will become easier.

If you believe you are eligible for the plan, you should gather information about gross monthly income of all borrowers in relation to your own income, your most recent tax returns, payment on credit card debts, payment on other loans such as car or student loans, and information on any second mortgages you may owe. Contact your lender and ask him or her if it would be possible to refinance with your current situation. If you do have a second mortgage, it may still be possible to refinance under the act, provided that the first mortgage is less then 105% of the value of the property and that the lender agrees.

If a borrower is not eligible for refinanced rates, the borrower can still benefit from the HASA in one other way. The HASA allows courts to enter the foreclosure process, so that a third-party can check whenever or not the lender has exhausted all other options, including refinancing, before foreclosing a homeowner. In essence, the HASA can turn a non-judicial foreclosure, a foreclosure without court oversight, into a judicial foreclosure. This will usually force lenders to slow down the foreclosure process, as lenders will have to prove to judges that all of their foreclosure paperwork exist and are correct.

Conclusion

The Home Affordability and Stability Act’s primary benefactors will be homeowners with a single mortgage who have been current with their payments, but are close to defaulting. The HASA can lower monthly mortgage rates, but the total balance will still be the same, if not higher. If a borrower wishes to use the HASA, he or she should contact the lender with information on gross monthly income, tax returns and other loan payments.

One other advantage the HASA gives to borrowers is the ability to bring in a court to ensure that there truly are no other options available to the lender other then foreclosure. If that occurs, it would be wise on the borrower’s part to have an attorney present. If you have any questions, please contact real estate attorney Richard Korb for a free consultation and further advice at 510-524-0903.

[1] RICHARD E. KORB is a seasoned attorney with 30 years of business, real estate and bankruptcy litigation and transactional experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, and general civil law and he has drafted and negotiated over 200 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters.  In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts.

By: Richard E. Korb©2011[1]

Successful defenses against foreclosures have become more common in California since the 2008 housing market crash. In fact, there have been several important cases in the past 3 years that are changing the way the courts view the foreclosure process.

Judicial vs. Non-Judicial Foreclosure

In the state of California, the lender has the right to decide if they want to pursue judicial or non-judicial foreclosure based on the wording of the loan contract. Because of this option, most foreclosures involving homes in California are non-judicial.

In the eyes of your lender, non-judicial foreclosures have many advantages over judicial foreclosures. We say most (but not all) foreclosures are non-judicial, because there are certain instances in which foreclosures against homeowners can become judicial. The most common reasons why a lender might choose judicial foreclosure are: (1) the judicial foreclosure entitles the lender to a deficiency judgment[2] or (2) the home has multiple encumbrances and there are rival disputes among their claims, which the court must settle.

Advantages To Lender of Non-Judicial Foreclosure

• Timing: they are considerably faster than judicial foreclosures (4-7 months vs. 1+ years)
• Cost: they are much less expensive since the lender doesn’t have to get counsel
• Legal: non-judicial foreclosures avoids redemption statutes[3]

What gives lenders the option of non-judicial foreclosure? The answer to that question can be found in the Deed of Trust of your mortgage contract.

What is a Deed of Trust and what does it mean?

A Deed of Trust is a document created by a lender which spells out the terms of the loan to the borrower. This document is very specific, and entitles the lender to initiate a non-judicial foreclosure as long as the lender follows California guidelines. Because the Deed of Trust contains a process of foreclosure that is outside of the normal court process, lenders don’t have to use judicial foreclosures. The Deed of Trust usually contains a Power of Sale provision that allows the lender to sell the property if the lender defaults. If there is no Power of Sale contained within the Deed of Trust, then the foreclosure must be judicial. So in essence, the Deed of Trust determines if the foreclosure will be settled in or outside of court. One that note, let’s dive into the legal steps required of both foreclosure processes.

The Judicial Foreclosure Process

As mentioned before, the judicial foreclosure process is used in California when no Power of Sale is present within the Deed of Trust. In this case, the lender initiates the foreclosure process through the courts by establishing a lawsuit. It should be noted that judicial foreclosure processes can greatly vary, depending on multiple and often unpredictable variables.

Step one of the judicial foreclosure process involves the lender filing a lawsuit in the county court along with a lis pendens. A lis pendens is a document that provides public notice that the property is in the process of foreclosure litigation and places a “cloud on title” such that the property cannot be sold until the cloud is removed. In a judicial foreclosure, the process is dictated by normal court procedures for civil actions. So the homeowner has the right to defend their case in court. The goal of the court is to determine whether the debt is valid or not and whether the lender has complied with due process “notice” requirements to the borrower. If the court deems the debt valid, the loan documentation in order and proper notice has been given, the foreclosure proceedings will begin according to guidelines established by the court. At this point, the court establishes a timetable for auctioning off the property to the highest bidder.

The Non-Judicial Foreclosure Process

Again, most foreclosures in California are non-judicial. This process must adhere to the guidelines and timetables described in the Power of Sale clause specifying the time, place, and terms of the sale. The Power of Sale clause must adhere to state guidelines but reserves the right to slightly alter the timing and terms of the sale as long as they follow state requirements. In the event that this clause is vague or contradictory, the Power of Sale clause must submit to California guidelines that describe how the non-judicial disclosure process will occur.

The first step in a non-judicial foreclosure is the Notice of Default which announces that the borrower has defaulted on the loan. This initiates what is called the pre-foreclosure stage, which lasts 3 months and 20 days at minimum. Within 10 days, the Notice of Default must be mailed to the borrower. Also, the notice must be mailed within 30 days to all other parties involved in the loan (such as lien holders). During this stage a 3rd party trustee establishes a date for executing the foreclosure, which must occur at least 3 months and 20 days after the Notice of Default.

The next step in the non-judicial foreclosure process is the Notice of the Sale. This step cannot occur until 90 days have passed since the Notice of Default. Once the Notice of Sale has been filed with the county recorder’s office for 20 or more days, the home may be sold at a public auction for the amount of the debt plus foreclosure costs. If no one bids at the auction, the lender assumes ownership of the property from the 3rd party trustee and may dispose of the property to recover their investment.

Defenses against Foreclosure

Now that you’ve got the basics of foreclosures in California, it’s time to proceed to the various legal defenses against the foreclosure. If you’re already in the process of a judicial foreclosure, you need not worry about establishing a lawsuit since you’re already in a lawsuit that was filed by the lender. But for most people facing non-judicial foreclosure, you must first file a lawsuit in the county court to enjoin (stop) the foreclosure. Initiating a lawsuit puts the foreclosure on a temporary hold to give you the borrower the opportunity to provide evidence that the foreclosure is in some way unlawful for it to become void. This can be very challenging. In this section we’ll try to use California cases that illustrate successful foreclosure defenses used in the recent past.

Lack of Legal Standing: The lender can’t prove that they own the mortgage. To understand this defense, we must first clarify the notion of legal standing. In short, legal standing is the right of a party to bring or defend a lawsuit in court. For example, if your parents are hit by a drunk driver, the parties that have standing in court are your parents and the driver – not you (unless you were injured).This defense has proven more viable as the predatory practices of the lending industry have become more prevalent and exposed. The recent mortgage scandal was caused in part to the slicing, dicing, repackaging, and sale of mortgages. What that means is that your lender may have sold the loan to someone else, who may have flipped the loan and sold it to yet another person. Why is this important? Only the legal owner of the loan has the right to initiate the foreclosure, and if your lender can’t prove that they own the loan then they cannot foreclose on your home.

How can the lender lack legal standing? Well, there are different ways a lender may lack legal standing, so it might be best to start with an example. In 2006, a Mr. Davies took out a home loan from Universal American Mortgage Company of California (UAMCC) who falsely represented that they were funding the loan. The mortgage was in fact subsidized by Deutsche Bank, and in 2010 Mr. Davies defaulted. OneWest Bank, a subsidiary of Deutsche Bank, subsequently initiated a foreclosure against Mr. Davies. In his defense, Mr. Davies successfully argued that OneWest Bank lacked standing to initiate the foreclosure. Put another way, OneWest Bank couldn’t claim injury because they didn’t hold the loan; and without injury the bank lacked legal standing.

In another court decision, a company called Bayrock Mortgage Corp. transferred some loans to Citibank through an electronic mortgage transfer system called MERS. After buying the loan from Bayrock, Citibank then foreclosed on some of the defaulting homeowners, who in turn argued that Citibank didn’t legally own their mortgages. In court, it was successfully argued that MERS (the intermediary electronic system) couldn’t transfer the loans from Bayrock to Citibank because MERS never legally owned the Deed of Trust. The California court ruled that “any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.” In other words, because MERS never owned the Deed of Trust, they therefore could not legally transfer the note. This may be a valuable defense if you’re foreclosure is being initiated by someone other than your original lender.

The lender forged the mortgage documents. As mentioned above, mortgages are often bundled, then repackaged, and subsequently traded on Wall Street to various investors; and your original lender may no longer hold the mortgage. A tendency during trading arose where multiple (sometimes thousands) of mortgage documents were bundled together, and at some point, many of the original mortgage documents were lost or went missing. Some lenders seeking to foreclose without the proper paperwork have turned to forgery, which was a topic recently discussed on a 60 Minutes segment.[4]

In the 60 minutes segment, a Florida woman named Lynn Szymoniak was taken to court by her lender in an attempt to initiate foreclosure. At first the lender said that they had lost her loan documents, but a year later they mysteriously found them. Lynn, a trained forgery analyst, became immediately suspicious and requested her own copy of these documents. The new documents, namely the Assignment of Mortgage, had blatant errors regarding dates. Lynn then researched another 10,000 mortgage documents online, to find that the signature of the bank’s supposed Vice President, Linda Green, had been forged in many instances, and even used by multiple banks. Lynn brought this information to court and to date she still lives in her home – completely stopping the foreclosure and suing for damages.

The lender engages in unfair lending practices. Sometimes lenders engage in practices which are clearly abhorrent to a reasonable person, but are kept hidden from the borrower until very late in the process. One of the more notorious lending practices to emerge in recent years is the use of parallel foreclosure: the lender negotiates with the borrower on a loan modification even though the lender is planning on foreclosing the borrower while the negotiations are still taking place.

Although the case U.S. Bank National Association vs. Mathon takes place in New York rather then California, it is still one of the clearest examples of parallel foreclosures to date. In 2009, U.S. Bank National informs the Mathons through a letter that if they, the Mathons, remain current on their loans during a three month trial period, in addition to paying during a brief finalization period, they will be considered for a loan modification. The Mathons paid a total of $22,568 to the bank, during which bank representatives accepted the money and verbally assured the Mathons that a modification would soon be coming. A year later however, the Mathon’s loan modification was denied on the grounds that they did not meet certain guidelines and that they failed to supply all the necessary documents. A few months after that discouraging news, the Mathons received a foreclosure notice.

The explanation for modification denial was rejected by the Court, however, as “there is no proof of any computation or other calculation explaining the basis for denial herein.” The Court could not find any proof that U.S. Bank National had even considered a loan modification for the Mathons.

Even though the Mathons had been current with their mortgage payments and speaking with bank representatives about a loan modification, the bank was already planning on foreclosing them. Or, as Judge Spinner wrote: “while Defendants were assiduously attempting to re-negotiate a modification, Plaintiff was instructing its counsel to continue prosecution of the foreclosure action. It is painfully obvious to this Court that Defendants relied upon representations made by Plaintiff and acted affirmatively based upon those representations, all to their serious detriment.” The bank had misrepresented their intentions by speaking and writing about loan modifications to the borrowers while planning legal action against the same borrowers in other departments.

Parallel Foreclosure is not the only unfair lending practice a lender may engage in, but it is becoming a popular one, even if it is not always identified by name. Engaging in such a practice, however, may result in serious penalties for lenders which use them.

The lender failed to follow state procedures. The foreclosure process is very clear-cut in California. Simply put, there are some instances which the lender failed to follow the legal process of a non-judicial foreclosure, thus making the foreclosure illegal. Typically, the courts will not prohibit the foreclosure, but rather make the lender restart the foreclosure process. In rare instances, the foreclosure may be permanently halted if the violations are excessively blatant. This defense takes some research and prior knowledge of statutes, which makes having legal counsel a must.

As a general rule: the more serious the infraction by the lender, the more serious the response from the court. The misspelling of a name won’t get you very far, but a failure to provide a Notice of Default will usually be treated as a serious violation of foreclosure due process proceedings by the court. For example, if your lender began the foreclosure without providing a Notice of Default to either to you or failed to file such Notice in public records, or gave the notice but began the foreclosure weeks later, the court may stop the foreclosure and force the lender to restart the process.

Here’s a recent example from a southern California case. In late 2009, US Bank initiated a foreclosure against a Mr. Salazar. The defendant argued that the bank had not followed proper foreclosure procedures because there was no recorded assignment of the Deed of Trust to US Bank. As mentioned earlier, a non-judicial disclosure cannot occur without the Power of Sale clause found in the Deed of Trust. The court agreed with Salazar, ruling that the non-judicial foreclosure was wrongful and void for failing to comply with California foreclosure laws. In this example, the infraction was serious enough to end the foreclosure for good.

Moving Forward with a Legal Defense

After reading the above section you should have a basic understanding of some of the common defenses against foreclosure. The next step is simple: get counsel. Your lender(s) will certainly have an attorney of their own.  For a more comprehensive understanding of legal defenses against foreclosure, speak with a knowledgeable attorney. Richard Korb is one such lawyer with over 30 years experience in real estate law and can counsel you on foreclosures. Richard can work with you, review your documentation, and can analyze your options. For a free consultation with Richard, call (510) 524-0903.

Foreclosure And Anti-Deficiency Laws in California: Can Your Lender Come After You? By: Richard E. Korb[1]

Your house is underwater, upside down, facing foreclosure, etc. Your house is now valued less than the loan you used to afford it. This means the proceeds of its sale will not be enough to pay back the loan on the home (your mortgage) in full. What should you do?

The first step is to weigh your options. Should you walk away from the mortgage obligation? If the lender forecloses and then sells your home for less than the amount you owe on the home’s mortgage (loan), will the lender be able to sue you for the difference, otherwise known as the “deficiency?”

The options are not picture perfect, but there are options and the laws in your state may offer some protection. California has what is termed “Anti-Deficiency Laws” detailed in the Civil Code of Procedure, Sections 580(a) through 580(d). Deficiency refers to the gap between the market value of the house and the value of loan at the time of loan repayment, meaning the amount of money that you would still owe to the lender after a foreclosure sale.

Anti-Deficiency laws can protect the borrower. Under certain circumstances, the borrower is no longer bound to pay this unpaid debt to the lender after foreclosure. In legal terms, the first trust deed seller cannot seek adeficiency judgment or the outstanding loan balance against the borrower or sue the borrower for the deficiency. However, these laws do not protect the borrower from be sued for fraud or waste, failure to maintain the property.

How does the law apply to your situation?

Whether deficiency protection applies to your situation depends on the type of property you own, the type of loan you have, and the type of foreclosure.

The first two conditions are found in Code of Civil Procedure (CCP) 580(b), otherwise known as the Purchase Money Prohibition:

“No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or 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 or estate for years therein, or under a deed of trust or mortgageon a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof if no deficiency judgment would lie under the deed of trust or mortgage on the real property or estate for years therein.”

What does this statutory language mean? First, in California, the mortgage loan must apply to an owner-occupied, residence between one to four units in size. The property must be one where you spend the majority of your time, otherwise known as your primary residence. This clause thus excludes vacation homes and investment properties. The latter part of the clause excludes dwellings with more than 4 units.

The second condition in CCP 580(b) concerns the loan itself. California’s anti-deficiency laws only apply to “purchase money” or non-recourseloans. These loans are any type of loan used originally to purchase your home. The only recourse or security for a purchase money loan is the property or collateral itself, hence the name non-recourse loan. Borrowers of recourse loans in California are not protected by Anti-Deficiency laws.

In the process of mortgaging a home, many home-owners take out second mortgages or loans acquired after the initial mortgage at time of purchase of the home. Unfortunately for these home-owners, the first loan or the purchase money loans are often not the problem. Instead the difficulty lies in paying back second mortgages or home-equity lines of credit (“HELOCs”) made after the original purchase.

With these secondary loans, otherwise known as Recourse loans, the anti-deficiency protection is removed. Recourse loans refer to additional financing or loans acquired after the initial mortgage at time of purchase of the home. This would include home-equity loans and second mortgages or a “piggy-back mortgage”, refinanced loans and home-equity lines of credit (HELOC). States with this condition in their statutory language are known asNon-Recourse States. Any type of loan taken out at the point of property purchase is protected by the Anti-Deficiency laws, but not additional financing or loans acquired later.

In most states, if the loan that is being foreclosed on is a loan that was obtained for the purpose of purchasing the property, then no deficiency is allowed. It doesn’t matter if it’s a first, second or third.  It doesn’t matter if it’s classified as a “HELOC,” a “seller carry back,” or, ultimately, a “sold out junior.” Purchase money is purchase money.Note that in some states (such as California) non-recourse laws apply only to “purchase money” loans (i.e. original home loans that are used to purchase property). Almost all HELOCs and home equity loans are considered recourse loans and lenders for these loans may sue borrowers to recoup loss. (Except in some cases where the second mortgage lender forces the foreclosure).

Example: Homeowner buys a house for $300,000, with a first for $200, and a second for $60,000, both put on the property at the time of acquisition. If the first forecloses, both lenders are barred from getting a deficiency because both loans are classified as “purchase money.” However, where the borrower has refinanced the original purchase money loan, or got a later home equity loan, that later loan is not a purchase money loan and could form the basis for a deficiency if the other anti-deficiency rules don’t otherwise apply.”

The only type of non-purchase money loan that may be protected from a deficiency judgment are loans used to improve your property. The third condition is found in CCP 580(d), termed the“Private Sale Bar:”

“No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or an estate for years therein hereafter executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.”

Most home loans have a “power of sale clause,” which means that the lender can take the property back through a non-judicial foreclosure or trustee’s sale. (See our article in our Business-Real Estate blog discussing Non-Judicial Foreclosure vs. Judicial Foreclosure). A lender that chooses to invoke the power of sale clause and pursues a non- judicial foreclosure (outside of the courts) cannot pursue a deficiency judgment against the borrower.

A lender can only sue a borrower for deficiency if he or she first files a judicial foreclosure. In this scenario, if the first lender forecloses and the second loan is a non-purchase money loan, the second lender can seek a deficiency judgment from the borrower. Thus you will still be accountable for the entirety of the second loan and all other additional financing, unless those loans were taken out at the point of purchase.  However, if the lender of the first purchase money loan and the second non-purchase money are the same lender then the lender cannot seek the deficiency for the 2nd loan.

Please note that this article is a simplification of complex issues and only covers the clauses that are most frequently used. To apply these laws to your specific situation and fully understand your options and their consequences, we encourage to you arrange a free consultation withRichard Korb, a Berkeley-Oakland–Walnut Creek business/real estateattorney at 510-524-0903.

By: Richard E. Korb. ©2011[1]

It’s no secret that in California—and all across America—the housing market is in a crisis and foreclosures continue to mount. With housing prices dropping, some homeowners have found themselves in the unenvied position of owing a greater debt on their property than the property itself is worth. In technical terms, this is called ‘negative equity,’ or more plainly referred to as being ‘underwater.’ And in today’s market, the homeowner may see no possibility of this situation changing anytime in the near future.

When this occurs, many homeowners may begin to feel that desperate times call for desperate measures. And that is where the idea of a ‘strategic mortgage default’ comes into play. Simply put, a strategic default is what happens when a homeowner decides to stop paying their mortgage in order to allow the bank to foreclose on their house. There is an important distinction to make between a strategic default and a regular foreclosure; in this situation, the homeowner has the money necessary to make the mortgage, but deliberately chooses not to do so.

Needless to say, this is a drastic step for anyone to take. But it has, in recent times, become increasingly common. However, anyone who is considering going through with a strategic default should first make sure that they are thoroughly prepared for its consequences, which can be severe. A default will damage your credit rating, which—even with an otherwise good credit score—can last for several years, and make getting any future loans much more difficult, expensive, or both. Furthermore, government agencies may  deny you the chance to obtain  a new mortgage for at least three, and possibly up to seven, years after  the foreclosure.

There is also the possibility  that your lender will not be satisfied with accepting the default, and may come after you to collect the rest of your debt. This generally happens when the bank is forced to re-sell your house for less than the amount they are owed on its mortgage, in which case they may be able to sue you for the difference, or the ‘deficiency.’ Californiais a state with anti-deficiency laws that may be able to protect you.[1]. However, there is no absolute guarantee, and it would be wise to research the clauses specifically pertaining to you and your situation further before moving forward with the default. Another easily-overlooked point to consider is the property tax still owed on the property; for as long as the house remains under your legal ownership, you will need to continue paying its taxes, even after you’ve chosen to default on the mortgage. Until the foreclosure has officially gone through, these taxes are your responsibility; if you choose to ignore them, the lender will likely be forced to foot the bill, which will enable them to pursue you later to recoup their losses.

Thus, before you go through with a strategic default, it’s best to contact an attorney to discuss all other possible options. Working with the bank to get a successful loan modification can allow you to stay in your home at a lowered mortgage rate; however, this is easier said than done. Alternatively, a short sale on the house may help you to get rid of the mortgage without damaging your credit score. Another option the bank may offer you is a deed in lieu of foreclosure, a document which you sign to hand over the house’s legal ownership to your lender, also allowing you to avoid foreclosure and possibly getting rid of the rest of your debt.

However, if a strategic default still appears to be your wisest—or only—choice, it’s best to enter into the situation well-prepared. After you stop the payments on your mortgage, you will probably be allowed to continue living in the house until the foreclosure goes through, which can take from several months up to six months, and in a few cases an entire year. This would be a good time to work on getting your other debts under control and generally sorting out your financial affairs. In the meantime, stay open to negotiations from the bank, which will likely want to arrange to keep the building occupied and in good condition until they are able to take possession of it. Your lender is not required to give you any more than three days notice in which to quit the property, but if you keep communications open and hold up your end of any deals, they may be willing to let you know when it will be time to move out much further in advance.

For any further questions or concerns on the advisability of a strategic default, or its possible consequences, please contact Richard Korb, a Berkeley-Oakland Real Estate Attorney, for a consultation at 510-524-0903.

By Richard E. Korb, attorney ©2011[1]

On April 1^st, 2011, the news organization 60 Minutes ran a story entitled “Mortgage Paperwork Mess: Next Housing Shock?” investigating the recent phenomenon of mortgage fraud by a number of big banks—including such well-known names as Wells Fargo, Citibank, Bank of America, U.S. Bank, HSBC and Deustche Bank. Though not yet directly implicated, these banks all relied on the services of a ‘mortgage processing’ company known as Docx (owned in turn by the company LPS) which has since been found to have committed forgery on an enormous scale. This situation is under investigation by the FBI and all fifty state attorneys, and is believed to be contributing to the current shaky state of the housing market.

What does all this mean for ordinary homeowners? Essentially, if you have been foreclosed upon or are in danger of a future foreclosure, it is possible that the bank is trying to take possession of your home illegally.

Here’s how it happened: during the housing boom in the earlier half of the decade, banks bought and sold mortgages at extremely high rates. By packaging a large number of individual mortgages together in bundles called ‘securities,’ they were able to maximize the efficiency, and thus the profits, of these sales. However, the sales progressed so quickly that the banks often found themselves short on time to complete the paperwork necessary to make these transactions legal. But instead of allowing this to slow the rate of their business, the banks chose to fudge, to cut corners, and sometimes to do without physical documentation altogether.

Now fast-forward to the present day, when these same banks are busy trying to recoup their losses from the housing crash through a large number of foreclosures. Unsurprisingly, they’ve been running into a few problems—not the least of which is that, due to their earlier sloppy and fast-paced business practices, it has become nearly impossible to determine who actually owns many of these houses. The legal documentation has been lost, or in some cases, never existed at all.

This is when companies like Docx enter the picture. For $10 an hour, Docx would hire people—generally teenagers, unskilled laborers, and the unemployed—to sign and notarize fake documents. This is called ‘robo-signing,’ and appears to have become a disturbingly wide-spread phenomenon. The banks then took these documents—consisting of forged signatures, non-existent company titles, phony social security numbers, and countless other falsehoods and inaccuracies—and used them to take possession of the houses upon which they wanted to foreclose.

With this misconduct finally coming to light, many homeowners are beginning to learn that they may have lost their houses illegally. As a result, more and more are choosing to bring suit against the bank in question; if their house was only lost in the past year or so, they might even be able to regain possession of it. And homeowners who have only recently learned that they are in danger of foreclosure, and can prove that this action is illegal, may be able to successfully defend themselves and earn a second chance to keep their house.

Generally, a small-scale investigation by an experienced attorney is all that it takes to determine whether or not a foreclosure is legal, and if not, to prove this in court.California is a non-judicial foreclosure state, which means that your foreclosure will not be automatically reviewed by a judge before it is allowed to go through; in other words, these discrepancies may not be caught if individual homeowners do not take action. It is up to the homeowner to confront these issues by filing a lawsuit against the bank seeking to foreclose on them.

Furthermore, even if forgery or misconduct cannot be clearly proven on the part of the bank, homeowners who raise the question may be able to gain themselves some extra time to live in their house without paying mortgage. If you are in this position, you should make sure to contact your bank at once; some banks are temporarily freezing foreclosures entirely, which could allow you to avoid the situation altogether. Even if this is not the case, any problems you find in the paperwork can be grounds for renegotiating the terms of your mortgage, possibly granting you a much better deal than the one which had earlier left you struggling. The scandal has made courts more likely to be highly critical of the paperwork in such cases, which in turn has led the banks to become extremely hesitant of facing any homeowner in court and risk having another forgery revealed. Thus, even if you personally cannot find any defects in the paperwork, simply confronting the bank with this possibility may give you all the leverage you need for a satisfactory mortgage modification.

On the other side of the equation, buyers in the foreclosure market may want to proceed more cautiously. Accidentally buying a house which was not the bank’s to sell could land you in an unpleasant mire of litigation and lengthy court battles. This can be prevented by hiring an attorney to investigate the legal situation of any house you are interested in purchasing—someone to confirm that all the paperwork is in order, the previous owners do not intend to sue, and the legality of the entire situation is beyond question.

Mortgage fraud is a complicated issue, and one on which no homeowner facing a foreclosure should remain ignorant. If you have any further questions, please contact Richard E. Korb, an experienced business and trial attorney, for a free consultation at (510) 524-0903.

[1]RICHARD E. KORB is a seasoned attorney with 30 years of business, real estate, civil litigation and transactional (contracts) experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, bankruptcy and general civil law and he has drafted and negotiated over 250 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters.  In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts. ©2011

   By: Richard E. Korb[1]

Signed in September of 2010, California’s Senate Bill 931, pertaining to California Short Sale Deficiencies, is new legislation designed to protect borrowers against deficiency judgments after approving and completing a short sale. Prior to the passage of SB 931, lenders had attempted to claim entitlement to deficiency through short sales, due to prior lack of protection from anti-deficiency laws.

Background: Traditionally in California, under our “anti-deficiency laws,” when a borrower becomes delinquent on a first mortgage, the lender holding the first mortgage can foreclose on the property through a non-judicial sale under the “power of sale clause” outlined in the promissory note—but it cannot sue the borrower for any deficiency between the amount the lender received on the sale of the property and the amount owed by the borrower. (See Civil Code of Procedure, Sections 580(a) through 580(d).

For instance, John Doe purchases a home in Burbank, California for $500,000. He borrows $450,000 and defaults on the first mortgage. The bank forecloses under the deed of trust and sells the home in a trustee’s sale for $300,000 (its fair market value) when the total amount owed by John is $400,000 including accrued interests and costs of foreclosing. The amount that John owes the bank after the foreclosure is $150,000 – which is the deficiency between the sales price and loan balance. Thus, since this is a first mortgage, the lender is barred from recovering the deficiency because the loan is classified as “purchase money.” (Note that a lender on a 2^nd mortgage or refinanced loan is NOT so limited–See our article in our Business blog entitled: (“Foreclosure and Anti-Deficiency Laws in California: Can Your Lender Come After You?”)

Prior to the passage of SB 931, a “short sale” was not considered to arise under the “power of sale clause,” hence the anti- deficiency protection given a borrower on a first mortgage did NOT apply when the property was sold in a short sale (as opposed to a foreclosure). The net result was that borrowers were encouraged to give up their homes through foreclosure rather than put the home up for sale through a short sale since only with a foreclosure could they avoid a deficiency action against them.

In essence, SB931 protects borrowers on first mortgages from deficiency claims when they dispose of their property through short sales in the same respect they would be protected in the event of a foreclosure by relieving homeowners from having to repay any remaining balances due on their first mortgages.

This law will apply to all first mortgage loans secured by one to four residential units – including purchase money, hard money and refinanced loans. However, it does not prevent the lender from searching for acts of fraud or waste by the borrower.

How exactly does this law protect me from a deficiency?

If a lender provides the borrower written consent to a short sale on a first mortgage, the lender must also accept the sales proceeds as full payment and discharge the remaining balance due on the loan. SB 931 takes effect in all short sales for one- to four- unit dwellings, of which are either owner or non-owner occupied. It is not the case that the loan has to be a purchase money or non-recourse loans. These loans are any type of loan originally used to purchase a home (as opposed to a subsequent 2^nd mortgage or refinancing). The only recourse for a purchase money loan is the property or collateral itself, ergo the name non-recourse loan.

What this means for future homeowners is that banks can no longer come after borrowers for a deficiency on their first mortgage regardless of whether home is sold in a short sale or foreclosed upon; instead, the remaining amount of indebtedness will be forgiven.

Will SB 931 also protect my junior loans – 2nd and 3rd mortgages?

SB 931 does not protect junior loans or second mortgages. As a result, lenders can still pursue borrowers for the balances on these loans just as they can in the event of a foreclosure on junior loans, second mortgages and any loan used to refinance the property. This law helps homeowners by giving them other options than foreclosure, which can hurt their credit.

Conclusion: In summary, SB 931 protects borrowers undergoing a short sale from first mortgage lenders pursuing them for deficiency judgments. Borrowers under the SB 931 law are now released from liability or responsibility from all remaining debt on first mortgages when their property sells short. This law only applies to first liens, and does not protect borrowers from deficiency on second or third mortgages.

Note that this article is a simplification of complex issues regarding foreclosure and the existing anti-deficiency laws. In order to apply the new SB 931 law to your specific situation and thoroughly understand your options and their consequences, we encourage you to schedule a consultation with Richard Korb, a Berkeley-Oakland-Walnut Creek business and real estate attorney at 510-524-0903.

[1] RICHARD E. KORB is a seasoned attorney (and Cal Berkeley Alum) with 30 years of legal experience in business, real estate, foreclosure, contracts, and more. Over his legal career, Richard has successfully litigated, negotiated and resolved over 300 cases for individuals and companies of all shapes and sizes. Richard leverages his experience to assist individuals and small-to mid-sized companies with a broad spectrum of legal matters.  In addition to his legal practice, Richard is also court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for the Alameda and Contra Costs County Superior Courts. ©2011 RICHARD E. KORB.