Legal Question in Real Estate Law in California

Are the first and second mortgages held by the same company? Different companies? Is the foreclosure sale non-judicial? Judicial?

In California, anti-deficiency rules prevent a lender from conducting a non-judicial foreclosure sale and then seeking the deficiency from the borrower. If the second mortgage is held by a different lender, then you may be liable for the amount of the second.

The idea of a short sale is that the property is sold "short" of the owing amount. The bank will have to approve this sale and in doing so will generally waive all deficiencies.

You get 5 points for posting in the right category, but lose 5 points for failing to research all of the recent posts regarding short sales in this forum.

I doubt you would be able to find a buyer who would agree to a short sale with the lender on the first deed of trust. If the lenders are different, the short sale buyer will be subject to your second, and the second will become first, and take priority over any financing the buyer uses to acquire your property. If you attempt the short sale with the lender on the second deed of trust, which the lender on the second may now agree to, the property will still be subject to the first deed of trust, and again, the buyer's financing would take a second to the first. I doubt that you are going to be able to short sale and satisfy both lenders.

If the lender on the first forecloses on the First Deed of Trust, through a nonjudicial foreclosure sale - known as a trustee's sale- the lender on the first cannot file obtain a deficiency judgment against you. (Code of Civ. Proc., � 580d.) The Second, however, will be what is known as a frozen out junior lienholder, and can sue you in court on their note, because their security interest was wiped out. There are exceptions to this, such as when the foreclosing lender is also the holder of the second, but you do not provide enough information for me to determine whether that, or any other exception applies.

If the lender on the second forecloses on the Second Deed of Trust, either that lender, or the buyer at a foreclosure sale will still be subject to the first, and have to keep the first current.

There has been discussion in this forum, but as of right now there is no case law, that a purchase money mortgage protection may survive a short sale under Code of Civil Procedure section 580b. I suggest that you restructure your debts, or speak to an attorney specializing in this area.

As usual, Roach's longwinded answer contains some truth and a bunch of errors. First off, he doesn't know anything about your situation regarding satisfying the two lenders. So for him to say you can't satisfy both is just stupid. If you can sell the property for enough to satisfy the first and partially pay the second, you have a perfect situation for a short sale. Alternatively, if the property is worth less than even just the first, and the second is going to be wiped out because the first is going to foreclose unless you can short sale, the second may agree to take some modest payment, or an unsecured payment plan, rather than just get wiped out and have to sue you.

Roach is also stupid to be discussing purchase money anti-deficiency law. You state it is an investment property. The purchase-money anti-deficiency statute expressly only applies to owner occupied purchases.

Mr. McCormick is stupid. I have clients who are living in their "investment" properties. They bought them, and reside in them, and they are purchase money mortgages. An invement property does not necessarily mean they don't live there.