Legal Question in Real Estate Law in California

Re: foreclosure short sale

Both the first and second loans are collateralized with deeds of trust on the property, and both loans are presumably reflected in the public records and no secret from either Bank. It is doubtful that Bank #1 would acquire the property from you unless Bank #2 released its lien, and to this extent I agree with Mr. Gibbs that doing any short sale would, as a practical matter, require knowledge and participation by both banks.

Short sales are coming in all flavors these days, and increasingly I see them being used, not so much as an old-style deed in lieu of foreclosure where the borrower simply surrenders ownership to the lender to avoid the headaches of a formal foreclosure for both, but as a somewhat sneaky way for the lender to convert a non-recourse secured note into an unsecured obligation upon which it can sue.

Therefore, I tell would-be short sellers to read the proposed terms of their short sale carefully; they aren't all the same, you get what you negotiate, the lender has skillful negotiators and will try to turn a bad situation (for them) into an opportunity to sue and get some of their losses back.

Re: foreclosure short sale

Any non-purchase money lender can sue you for deficiency, and levy on all your assets with a judgment.

Re: foreclosure short sale

You cannot accomplish a short-sale without the consent of both banks. Both banks must agree to release their collateral (the house) from the loan before you can sell it to anyone clear of the liens for the loan. In most short-sales the bank will not write-off the short - the difference between what you owe and what they get from the sale of the property - and will continue to attempt to collect that from you through a lawsuit and eventually bank account levy. Remember, you signed a promissory note (or two promissory notes) promising to repay the entire amount. The fact that they let you sell the house without paying the whole balance off does not automatically wipe-out the remaining debt - its still there, and the promissory note you signed when you first got these loans is entirely enforceable by the bank.

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