Each day, the news brings us tiny glimmers of hope that the economic woes that have turned the real estate market into a morass of unpalatable realities might just be behind us. Each day, however, there seem to be items served alongside those glimmers that give me pause.
These items, after making me take several deep breaths, have me advising my clients, customers, and Intero agents that patience will be the better part of valor when it comes to economic recovery.
We know that millions of Americans, and lots and lots of Californians among them, have lost their homes to foreclosure. Going through that process is more difficult than most people can possibly imagine. It’s a pride-swallowing siege that affects every aspect of your life. Once it’s done, however, it’s done and, typically, people can begin the process of rebuilding their lives.
Unless they can’t.
What if, after going through a foreclosure and having a mortgage discharged, you also have a second mortgage to pay? What then?
California is a non-recourse state. This means that any loan taken for the purpose of buying a home is discharged once a foreclosure has taken place. Debt collectors cannot pursue borrowers for loans in default that were used to purchase a home.
Loans that were taken for other purposes? Lenders can, and often do, do whatever it takes to collect what is owed.
If a second mortgage was taken and that money was used to help finance the purchase of a home, then it’s non-recourse debt. But often, banks and lenders won’t tell the borrowers that. There’s a loophole in the legal speak that governs such things that says that there’s nothing preventing the borrower from “voluntarily” repaying the debt. So lots of people who’re not under an obligation to repay find themselves on the receiving end of dunning calls and letters and struggling to make payments when and where they can.
If a second mortgage was taken and it was not used as part of a home purchase? Well, those monies are due and payable, regardless.
Whether lenders will try and collect is another matter altogether.
In California alone, almost $500 billion in home equity lines of credit (or other such loans) were taken out by homeowners. Banks are going to collect when and where they can. Sadly, a borrower’s personal net worth may be the deciding factor in their decision to pursue or not to pursue.
So, what are the options?
Well, one is to pay the debt if you’re able. If you can’t, my best advice would be to consult with an attorney to discuss your options. You may find your attorney will tell you that a short sale would allow you to negotiate part or all of your deficiency away. If this is the case, find a certified short sale agent within any of our offices to help guide you through the process.
There are options, but it’s best to explore them sooner, rather than later. If you have concerns relating to foreclosure or your ability to borrow money to purchase a home, please consult your Intero agent. The road to recovery is a tough one, but it can be ridden. We all just have to be patient.