Legal Question in Real Estate Law in California

Re: Real Estate Law Question

Virtually all banks are including that language in their short sale approvals. Its not uncommon, and yes, it is entirely legal. First, you need to understand the anti-deficiency (non-recourse) laws in California. Those laws only apply in the context of a foreclosure. A short sale, contrary to a foreclosure, is a voluntary agreement by the bank to accept less than the entire amount owed on the loan to release your collateral. They will agree to let the house be sold for less than they are owed, however, that does not in any way affect the enforceability of the underlying notes. The bank is waiving its right to demand full repayment of the note at a sale of the collateral, however, nothing in California law says that in doing so, they also waive the right to collect the "short" from you. Anti-deficiency laws are completely inapplicable to a short sale.

Your options are these. First, you can continue to negotiate with Countrywide and tell them if they don't let you off the hook for the "short," you are going to cancel the sale (hopefully your realtor was smart enough to write into the purchase agreement an out for you in the sale if the bank did not fully waive its right to collect the balance due on the note), and let them foreclose. Your credit will take a huge hit, and without reviewing your exact facts, I cannot even say for sure that you won't have a deficiency exposure on the second. Assuming you don't (and this conculsion requires a close examination of the facts regarding your two loans), a foreclosure will let you walk away free and clear, except you take a credit hit.

From the bank's perspective, they will lose (as an industry average) 30% of the loan balance immediately as a result of the foreclosure. They could eventually lose even more assuming the FMV of the property is way below what you owe, and the market continues to errode. This is the only leverage you have - they'll lose more if you walk than if they give you a short sale with full waiver.

Your second option is obviously to accept their deal, and workout the balance with them. You cannot force the bank to eat the short on the deal - they still have your signed promissory note when its all said and done, and can sue you under that for the remaining, unpaid balance.

*Due to the limitations of the LawGuru Forums, The Gibbs Law Firm, APC's (the "Firm") participation in responding to questions posted herein does not constitute legal advice, nor legal representation of the person or entity posting a question. No Attorney/Client relationship is or shall be construed to be created hereby. The information provided is general and requires that the poster obtain specific legal advice from an attorney. The poster shall not rely upon the information provided herein as legal advice nor as the basis for making any decisions of legal consequence.

Re: Real Estate Law Question

Just to follow-up, I attempted to reply to the direct-email you sent me subsequent to posting this, and it was rejected by your employer's server. Please use a different email account to email me directly, or put a different reply address in your email please so I can reach you. Thanks you.

*Due to the limitations of the LawGuru Forums, The Gibbs Law Firm, APC's (the "Firm") participation in responding to questions posted herein does not constitute legal advice, nor legal representation of the person or entity posting a question. No Attorney/Client relationship is or shall be construed to be created hereby. The information provided is general and requires that the poster obtain specific legal advice from an attorney. The poster shall not rely upon the information provided herein as legal advice nor as the basis for making any decisions of legal consequence.