Legal Question in Real Estate Law in California

Re: Foreclosure

In short, no. You have to remember that a short-sale is a voluntary accomodation by the lender. The lender has no legal obligation to entertain or accept a short sale offer. You signed a promissory note agreeing to repay the loan in its entirety, and that you would not sell the home without first paying off in full both loans (1st and 2nd). When a bank agrees to take less than they are owed, they do so not out of any legal or contract obligation, but as a means of minimizing their losses on certain properties. While their failure to properly handle your request is tragic given your situation, it is almost certainly not the basis for any liability on their part. You should, however, consult with a local attorney as I suspect there may be more facts than you can post on this site, which might lead an attorney to reach a different conclusion.

One final note, and this might be adding insult to injury, your second mortgage lender may have the right to sue you for the loan balance even though you lost the house. Unless the second is prohibited from doing so by anti-deficiency laws, they still hold a promissory note signed by you stating that you will repay them a certain amount of money. At some point you might expect collection efforts to begin. You might raise their mishandling of the short-sale as a defense, but again, it is probably without any legal merit. Again, you may want to consult with a local real estate attorney to review all of the facts and determine if you have any exposure for deficiency.

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