Legal Question in Real Estate Law in California

Foreclosure with two homes

I refinanced with a neg-am loan on my first home and I took money from the loan to purchase another home. I rented the first home for about a year and that covered that mortgage payment but when the loan adjusts in a few months I will not be able to afford the new payment. Selling the home is not an option because I owe more than what it is worth. At this point, I'm contemplating foreclosing on the first home but was wondering what ramifications would that bring. Would I get a 1099, be sued, and what would happen to the second home?


Asked on 5/22/08, 1:49 pm

1 Answer from Attorneys
Judith Deming Deming & Associates

Re: Foreclosure with two homes

There are a lot of variables to consider, particularly in that it is not clear how long you owned the first home, if it was your "residence," etc. Briefly, if the lender forecloses on your property you will be sent a 1099 for the "forgiven" debt; i.e., if the outstanding loan with late charges and interest and costs of sale was $300,000.00, you will be sent a 1099 for that amount.

You COULD be sued for a deficiency if there were any false statements on your loan applications, such as overstating your income, claiming you would be occupying the home but did not, etc. When there is fraud involved in the making of a loan (and make no mistake, false statements made in the loan application are fraud on the lender)the lender is not limited to just taking back the property, but can foreclose judicially and seek a deficiency judgment. Whether they will do that or not depends upon whether they believe there was fraud and whether you have additional assets from which they can recoup their money.

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Answered on 5/22/08, 5:37 pm


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