Legal Question in Real Estate Law in California
2nd. TD holder claims I still owe them $$$ after releasing lien
I sold my property in S. Cal under a short sale agreed to by both the 1st and 2nd. TD lenders. The 1st. TD was a negative-am loan which ate up the equity and robbed the 2nd. TD of it. Essentially the 1st. TD lender not only covered their note but also above and beyond what was actually due in interest by adding fees, etc. yet still claimed a short sale by about $38K. The 2nd. TD (HELOC) accepted $8K on a $191K note and released the lien on the home. My agent talked the 2nd. TD lender into taking the $8K or possibly nothing once the home goes into foreclosure and sold under auction, which would only be a week later. The home sold to a cash buyer for $635K. The 2nd. TD lender wrote a letter to my Agent that they will accept the $8K and release the lien on the home, however, with language that I would be responsible to pay the balance due on the note PLUS $9K in fees. My question is, does the 2nd. TD lender have a legal right to come after me for the balance due on the 2nd. TD HELOC note after they gave up their collateral for $8K? We are also insolvent and owe creditors, etc...basically on the verge of bankruptcy.
3 Answers from Attorneys
Re: 2nd. TD holder claims I still owe them $$$ after releasing lien
Yes. Releasing a lien is not the same thing as releasing a debt. Many borrowers are suprised to find out that after they lose their home in foreclosure on a first loan that the holder of the second loan sues them to collect the debt owed on the second loan. Unless your agreement to pay them $8k contained some release language, you still owe the debt.
You may want to consider consulting with a bankruptcy attorney (which is not my practice area).
Best of luck.
Re: 2nd. TD holder claims I still owe them $$$ after releasing lien
Yes, unless the 2nd was made at the time you originally purchased the property (not a refinance or loan placed on the property after you bought it), AND the property was a residential property of 1-4 units AND was YOUR residence. Unless it qualifies under that criteria, they can go after you for every cent they did not get. Most real estate agents haven't a clue about deficiency rights of lenders, so do not rely on what any agent tells you about such matters (particuarly in that they stand to make a commission), and many attorneys do not unless they specialize in real estate. Whether you are insolvent, etc., has nothing to do with whether the lender has these remedies, but may affect whether the lender pursues them and when.
Re: 2nd. TD holder claims I still owe them $$$ after releasing lien
A strong letter to the 2nd TD holder must be sent requesting an explanation of the inconsistant written documents and understanding. We would need to review your documentation. Please call us if you have any questions.
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