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I may soon be in foreclosure and want to make sure I understand the deficiency laws in my state. I’ve spoken with 2 bankruptcy attorneys and received a different answer from each. Here is the situation:

I live in Calif, purchased the home in 2005, have two mortgages, one for 80% and one for 20% to make up the full 100% loan price. The 1st was refi’d by Countrywide in 2007. The 2nd was never a refi (the lender agreed to re-subordinate with the 1st). As I understand it if Countrywide pursues foreclosure I would not be subject to any deficiency due to the “one action” rule. However, the 2nd is the question. From what I’ve read the 2nd being a purchase money loan could not sue for deficiency, one lawyer said yes, the other said no because they have not had their "one action” yet. I’m basing my info on this:

“In California, a lender can only take one action against you - either a judicial foreclosure or a non-judicial foreclosure. If your property has only one mortgage the lender will in almost every case pursue a non-judicial foreclosure.

If the sale of the foreclosed property does not pay off the mortgage in full, the foreclosing lender cannot get the unpaid balance from you. By pursuing a non-judicial foreclosure the lender has used their "ONE ACTION".

If your property has a 2nd loan and the 1st lender pursues a non-judicial foreclosure and the sale of foreclosed property results in an unpaid balance to the 2nd lender, the 2nd lender can obtain a deficiency judgment for the unpaid balance because they have not had their ONE ACTION against you yet (with the exception of the Purchase Money rule).”

According to this there would be no deficiency with respect to the 2nd, but the other lawyer assured me this was not correct. Any thoughts on how this works?

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Let me comment on your situation - I'm not an attorney, just an agent at a modification company.

A foreclosure is action a lender takes towards the borrower not making their scheduled payments. In most cases the lender in first position is in control. As for the lender in 2nd position - they can file a judgment which you will be responsible to pay at a later date.

The length of time is different from state to state - in most cases after four months a borrower receives notification of foreclosure and a leis pendes is filed at the local court house. After 8 months - if no action is taken, it is deem the borrower has given up all rights to the property.

Again it is different from state to state, and every situation is different (amount owed, value, etc) The time it is going to take for a foreclosure to happen in Florida / California (two of the hardest states hit with dropping value), is going to take longer than states like New Jersey/Washington.

Reason being - it will cost more to the lender than what they can recop back from the foreclosure if the amount owed is more than the value of the property.

By filing a bankruptcy - this can stop the foreclosure on your home, what you are doing is postponing paying the debt. There is a better way.....

Everyday to speak with individuals in similar situations like yours. Example - last week took in a modification of this lady that hadn't paid her mortgage in five years. She originally stopped the foreclosure by filling bankruptcy. Now she was looking to turn her life around.

I suggest to you if you want to save your home and make it easier for you in the future. You need to get a good modification attorney that can negotiate loan reinstatement and better terms.

The rules of this forum prevent me form mentioning the name of my company........xangelx

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Thanks for the input, but I'm not interested in saving the house as the only modification that would be acceptable would be a major principal reduction.

I still have the specific question about whether the 2nd can be considered a purchase money loan. Can anyone shed some light on that?

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Like the previous poster stated, it varies by state. Don't take information you get on the Internet as gospel. You did the right thing by talking to attorneys.

My question is - which one was more qualified? If you ask a divorce attorney, they might give their opinion, not the law. Hopefully one is an experienced real estate attorney. Listen to them.

Good luck.

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