Legal Question in Real Estate Law in California

Re: Forclosure

No. Homestead will protect $75000 of the equity in your home that you own with your wife. If they foreclose it will be by Trustee's sale and they cannot then get a judgment for any unpaid balance on the note. If you can't work it out with the bank, call me and I'll put you in touch with a company that can give you some better options.

Re: Forclosure

First, it's "quitclaim," not "quick claim." I would advise against transferring your interest in the home to anyone for the purpose of trying to shelter it from creditors. That is a classic example of a fraudulent transfer, and the public record would make the deal transparent. A court would annul the transfer and both of you would be liable for damages in addition to whatever you already owed the creditor.

The redeeming feature here is that the bank is not likely to become a problem creditor if it forecloses.

If your townhouse goes for $300,000 at the foreclosure sale and you owed $360,000, that leaves the lender with a $60,000 shortfall. Then, the issue becomes whether the lender is entitled to a judgment against you for the $60,000 after the collateral is exhausted (which they must do first in any case). Such a judgment is called a "deficiency judgment."

A creditor cannot get a deficiency judgment in the following two situations:

(1) Where the foreclosure is done by a trustee under a power of sale in a deed of trust. This is far and away the most common foreclosure route and hence most foreclosures don't result in deficiency judgments. The other is:

(2) When a loan being foreclosed judicially (in court rather than by trustee sale) is a purchase-money loan made (a) by the seller OR (b) by a third-party lender if the property is a single-family residence used by the buyer as his principal residence.

Since your loan is by a bank and not the seller, and you don't live there, I'd say you have no deficiency-judgment protection IF the bank decides to foreclose in court, which is more expensive and time-consuming for them than a trustee's sale, but you are protected under (1) above if they use a trustee's sale.

If the deficiency is large and the bank smells blood (i.e. knows you own another asset, which the probably do), they might get nasty and go to court to foreclose and get a deficiency judgment. Otherwise, the bank probably won't bother.

There are two kinds of homestead protection. One is automatic and doesn't require you to do anything before you need its protection. The other is the so-called declared homestead, and that requires you to record a declaration; your protection under a declared homestead applies only to liens arising AFTER the date of recording AND which are not consensual. (A lien of a second mortgage you agreed to be placed on the property would be consensual and thus you wouldn't be protected against that lender's claims).

The coverages of the automatic and declared homesteads overlap somewhat, but even with its limited sheltering effect, a declared homestead might be a good idea for you and your wife to record on the house you reside in.

Re: Forclosure

You can protect your home with a homestead declaration; which you may or may not want to do in your situation. If the bank does not know that the townhome is not your primary residence, it may assume that it is and may forego suing you for a deficiency. If the bank knows or discovers that the townhome is not your primary residence, then the bank will know you do not have anti-deficiency protection in the townhome. You CAN be sued for a deficiency after a non-judicial foreclosure of your townhome. Although these lawsuits are not common, they do happen. In such a suit, the amount that can be obtained is limited to the difference between the market value (not the amount the house sells for at the foreclosure sale) and the amount owed. In today's economy with housing market values nose-diving, I believe more deficiency suits are going to be filed. To protect your primary residence from a possible deficiency judgment you can declare a homestead (sometimes up $150,000), you can sell it for value, or you can file bankruptcy.