Legal Question in Bankruptcy in California

Re: Foreclosure and second mortgages on rentals

If you do not pay the mortgages, they have the right under California law to commence foreclosure action. The First Trust Deed holder is probably limited to what it gets from the foreclosure sale. However, if the second has a deficiency, then you could end up owing them whatever that amount is and they can collect the same way as any other creditor (wage garnishment, attachment liens, etc.). Since you haven't provided me with any numbers, values, etc., I cannot give you any further answers. Whether bankruptcy can help or not depends on what your financial circumstances are and what it is that you want to accomplish.

Re: Foreclosure and second mortgages on rentals

Dear Mr. Markus:

What will occur in the event that you do not pay the first lienholder and the second lienholder depends upon a number of factors. One important factor is whether the loan is a "purchase money" loan, also called a "non-recourse" loan. that simply means that the loan was created at the time you purchased the property. IF the loan was created when you initially bought the property, generally all the lender can do, if the property is a single family dwelling, is to foreclose on the property and you would lose your interest in the property but you would not be responsible to that lender for any further sums. However, if the loan is NOT a purchase money loan (generally this is the case if the loan was created after you had owned the property for a period of time), lender has the option to pursue a deficiency judgment against you for any monies he may not recoup by way of foreclosoure. This would require the lender to sue you in court for foreclosure on its security (your property). If he wins in court, the court will order the property sold, and if the proceeds of sale are insufficient to satisfy the outstanding loan, together with attorneys fees the lender incurs and costs of sale, then the lender will not only divest you of your interest in the property, but will get a judgment against you personally, for the dollar amount of any difference between what he has lost and the value obtained for your property at the judicial foreclosure. THEN, once they have a judgment, a lender can execute against your assets (car, etc.) or garnishee your wages, etc.

The situation is more complex as to what will occur, etc., if only one of the lenders forecloses, and varies as to which one it is (the first lienholder or the second lienholder). With respect to the lenders being different, that will not affect the situation. As to bankruptcy protection, since you are talking about a RENTAL and not your home, filing bankruptcy would not likely afford you any protection.

This response is very generalized and to adequately explore your options, you may wish to consult my office and come in for an initial consultation, which costs $65.00, but is well worth the money, as we spend whatever time it takes to give you a clear picture of your options. If you are outside the Southern California area, we can do a telephonic consultation, if arranged in advance and provided with relevant documentation to review prior to the consult. If you are interested, please contact my office for arrangeemtns.

Judith E. Deming

(714) 997-9222