vjake

mortgage deficiency collection

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Hi, I am new to CI and new to blogs and very inexperienced with how to use them. Thank you for your patience.

I a Cali resident and sold home in a "short sale" transaction which resulted in the creditor (JP Morgan/Chase) releasing the lien to allow the sale for less than the amount owed on the existing mortgage. The lien was a 2nd equity credit line for $250k. They lost it all in the sale but did not release me from the note. They sold the debt to a junk debt collector.

My question: Cali law requires a recorded "corporate mortgage assignment" on the sale of a mortgage lien and notification to the mortgagor of the sale of the mortgage. Technically the remaining debt was not a mortgage lien because they released the "Deed of Trust" which secured the mortgage to allow the short sale. My original contract debt was a mortgage lien. My agreement with Chase was to secure the lien with a mortgage. How is a sale/assignment of the remaining note/debt valid without a "corporate mortgage assignment"? or without a judicial foreclosure? Do I have a case for invalid assignment?

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Did you have 1 or 2 mortgages on the property and which one is going after the deficiency judgement? In a short sale, usually the first mortgagor releases you from responsibility of paying the amount of the mortgage that the sale did not cover and if there is a second mortgage the first mortgagor needs to get the second mortgagor to agree to removing the lein on the property so that the sale can go through. The first mortgagor will 1099 you for the difference and you have to pay taxes on the forgiven amount unless you can prove insolvency to the IRS. It is common for the second mortgagor to go after a deficiency judgement. Releasing the lien does not release you from responsibility of the debt. It just turns a secured debt into an unsecured debt. However, it is legal for the ANY of the mortgagors to go after a deficiency judgement if the short sale agreement you had with them did not state that you would be released from responsibility of the remaining mortgage balance. Check your paperwork!

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Thanks for responding. There were two mortgages. The first released liability, the second did not. I am looking for a test on the lack of "corporate assignment" document. I have caught wind that this issue is circulating in Cali courts regarding these types of deficiencies because the original contract between me and the lender was for a secured loan via a mortgage. The remedy for non-payment would normally be foreclosure or judicial foreclosure. This is not the case. They released the lien thereby giving up the agreed upon method of satisfaction under the original contract.There is an issue of law regarding changing the contract in mid-stream without unilateral agreement and also failure of the "corporate assignment" filing which cannot exist because they released the lien... a catch 22. I am hoping some sharp legal minds that are up on pushing the cutting edge on mortgage/collection/deficiencies law would be able to figure out the angle. This would help thousands of people and could start a landslide legal practice for a sharp firm.I did get a 1099'd on both... a shortage on the first and the entire second $250K.

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Ture that it is unsecured now ... but not an agreed upon contract... there is something to this angle but I believe just in Cali because we use a "Deed of Trust" . Contracts cannot just change there terms in mid-stream without unilateral agreement. The angle of the corporate assignment is being pursued... I just don't know who and where... hoping to catch wind of it through the forum. Thanks!

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I am a bit confused by your post but I am willing to try to sort it out. First of all:

Cali law requires a recorded "corporate mortgage assignment" on the sale of a mortgage lien and notification to the mortgagor of the sale of the mortgage.

Do you mean the power of sale provisions in Civil code section

2932.5?

Technically the remaining debt was not a mortgage lien because they released the "Deed of Trust" which secured the mortgage to allow the short sale.

By "remaining debt" do you mean the deficiency on the First Mortgage or the entirety of the Second? Or both?

How is a sale/assignment of the remaining note/debt valid without a "corporate mortgage assignment"? or without a judicial foreclosure? Do I have a case for invalid assignment

What exactly are you characterizing as an assignment. The release of lien?

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I am a bit confused by your post but I am willing to try to sort it out. First of all:

Do you mean the power of sale provisions in Civil code section

2932.5?

I have read this an it appears to have no application as it is dealing with foreclosures... this was not a foreclosure it aws a short sale, there was not even a NOD filed.

By "remaining debt" do you mean the deficiency on the First Mortgage or the entirety of the Second? Or both?

The remaining debt is the 2nd only the 1st did a full release.

What exactly are you characterizing as an assignment. The release of lien?

The "corporate assignment" is a recorded document that transfers the security of the lien... in this case in Cali the lien is security is the "Deed of Trust". Chase released the "Deed of Trust" to allow the short sale to go through leaving the remaining debt unsecuritized.
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I'm not sure why you are splitting hairs on the exact classification of the debt. Is there some advantage to having it declared one way or another? I can't see one. I'd forget about this, honestly, and just treat it like a credit card.

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The advantage would be an invalid debt. If a recorded "Corporate Assigment" is required to legally transfer the debt and it doesn't exist... then the debt was purchased and the jdb can't prove a valid debt to collect. They can't back up and get a "Corporate Assignment" because the "Deed of Trust" was released and the assignment is for the "Deed of Trust". Reverting to unsecured is not valid because the original agreement (between debtor and creditor) was for secured debt based on the "Deed of Trust".

Anyway, this is what I have heard that someone, agency, law firm is working on... but I'm still looking for anyone that knows more about it than I do. I only know enough about mortgage documents and the process that it sounds like a fine point of the process that may be able to be pressed in favor of the debtor.

Thank you for your continued interest... any ideas on who we might forward a copy of the posts to that could help?

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