Legal Question in Real Estate Law in California
We purchased our home in 2005 on a I/O 5/1ARM. We purchased on a 80/10/10 option and about a year later we refinanced our 2nd to cash out equity to landscape the backyard. We then refi'ed again to get a better interest rate. We now owe about $150k more than the value of the home. We were told recently that the 2nd mortgage company could force us into a personal loan circumstance due to the fact that the loan is not a 100% purchase amount. Is this true? Currently we can afford our home loan but in Jan when the loan resets we will be struggling, would like to move closer to jobs but cannot sale the home due to the value/loan ratio. What are our options?
1 Answer from Attorneys
If the holder of a second deed of trust loses its collateral through "no fault of its own," then it becomes an unsecured creditor, and as such may not be subject to the California laws against default judgments. Such creditors are calle "sold-out juniors" and can be a real worry because their rights persist after a foreclosure sale. Depending upon the medium-term future prospects for your community, you might consider holding on until the market recovers, especially because buying another house will be tough if you have poor credit or the htreat of lawsuits hanging over your heads, but if the recovery of the lost value looks really remote in your community, then maybe it's best to take the foreclosure hit, hope the 2nd doesn't sue, and rent for a few years until you can repair your credit. I'd inquire of local brokers.
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