Legal Question in Real Estate Law in California

If the 3rd is entirely under water, have your attorney file for Chapter 13 bankruptcy protection and the loan can be made to go away completely (also the lawsuit). For that matter if the 2nd is also underwater, poof, it disappears.

I'm afraid it isn't going to be that easy, if the lender is sophisticated, and he/she/it seems to be.

First, I have to assume a third loan is not purchase money. If it were, you'd be pretty safe.

The lender's strategy is probably to sue for judicial foreclosure, obtain a deficiency judgment, then attack the transfers of your other properties to your wife's LLC as fraudulent. If you transferred them, as it appears, as gifts (or for below fair value), look out for an attack on these transactions under the Uniform Fraudulent Transfer Act, Civil Code sections 3439 to 3439.12.

Filing bankruptcy does not necessarily lead to discharge with respect to liability for fraud. If you discuss Ch. 13 with an attorney, be sure to mention the UFTA and the LLC transfers and have the attorney analyze your risks before you file.

Also note that the UFTA applies not only to debts owed at the time of the transfers, but also to debts that the transferor anticipated he might have in the future, such as judgments.

I agree with Mr. Whipple. When you moved assets out of your name without fair market value payment, you set yourself up. They are fradulent transfers in state court and voidable transfers in bankruptcy. On top of that, they can come after your community property interest in any and all assets, regardless of whether they are in your wife's name or yours. Lastly, if you took out this loan while married, it is your wife's debt too, even if only your name is on it, again due to community property law. And just as an aside, "lien stripping" in Ch. 13 is not guaranteed and there is a split of authority on whether it is permitted in cases where real property is involved. The favored view is that if there is a possibility of the real property appreciating to cover some or all of the underwater debt at a later date, lien stripping is not appropriate.

Bottom line: You need to sit down with an attorney and lay all your cards on the table, so you can discuss and get fully informed advice on how to deal with this mess.