What is a Deficiency Judgement?

Elk Grove Short Sale sellers have to be concerned with whether or not their lender will file a deficiency judgement against them or not. So what is a deficiency judgement?

According to Wikipedia – A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full. [1] The availability of a deficiency judgment depends on whether the lender has a recourse or nonrecourse loan, which is largely a matter of state law. In some jurisdictions, first mortgages are non-recourse loans, but second and subsequent ones are recourse loans.

Let me illustrate -

Mr. and Mrs. Elk Grove Home Seller purchased their home in 2003 for $350,000 with a first and a second loan. They put $35,000 down, their first loan was $280,000 and their second loan was $35,000. In 2005, before the market crashed, they were able to refinance both the first and second together into one loan totalling $315,000. Today, they cannot afford the payments on this loan due to job cutbacks and they need to sell their home. The value today unfortunately is only $185,000 on this same home and yet they still owe $310,000. The difference between the $310,000 owed to the bank and the $160,000 the bank may net from the short sale or $150,000 may be considered a deficiency by the bank.

Under current California law, the good news is all purchase-money loans on a one- to four-unit owner occupied residential dwelling are exempt from deficiency judgments. The bad news is under current law once Mr. and Mrs. Elk Grove Home Seller refinanced, the new loan may be subject to a deficiency judgement.

So what do Mr. and Mrs. Elk Grove Home Seller do at this point?

First, make sure to talk to a California real estate attorney and get their advice.

Second, talk to the lender and see if they will negotiate for a discounted payoff. Many will, however they may ask you to sign a new promissory note to replace the old one. In this case, make sure the lender returns the old promissory note to you marked paid in full.

If you are a Elk Grove or Sacramento area homeowner and are contemplating a short sale, we are here to help! For more information on Short Sales, make sure to check out these blogs:

HAFA Short Sales avoid deficiency judgement

California Short Sale Sellers Rejoice

Elk Grove Short Sales – Important Questions Answered

Elk Grove Homeowners – Is a Short Sale Right for You?

Elk Grove Short Sales – Is this the market of the moment?

For more information on Short Sales

If you are a seller and wish to contact us for a FREE consultation regarding a possible short sale on your home, please call us at (916) 230-0371 or send email to Lori@ModeandDurhaM.com.

Search all Elk Grove homes here!

Search all Sacramento homes here!

Please note: I am not licensed to give legal advice and provide this information for general information purposes. If you desire legal advice or more information, please contact a California real estate attorney.

California Short Sale sellers pay attention in the upcoming days as California SB 931 is closer to becoming a reality! When Governor Schwarzenegger signs California SB 931, Californians will rejoice! This should make California Short Sale sellers breathe a little easier. California SB 931 will ban deficiency judgements for California short sale sellers with a first mortgage. It has now passed both the Assembly and the Senate and is simply awaiting Governor Schwarzenegger’s signature.

According to AroundTheCapitol.com

“This bill would prohibit a deficiency judgment under a note secured by a first deed of trust or first mortgage for a dwelling of not more than 4 units in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. The bill would provide that written consent of the holder of the first deed of trust
or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.”

This means that California short sale sellers will be exempt from a deficiency judgement on a first deed of trust or mortgage, even if it is not a purchase money loan….so if they have refinanced or even if it is a hard money loan.

Watch for upcoming news that Governor Schwarzenegger signs the bill into law!

If you are a Elk Grove or Sacramento area homeowner and are contemplating a short sale, we are here to help! For more information on Short Sales, may sure to check out these blogs:

Elk Grove Short Sales – Important Questions Answered

Elk Grove Homeowners – Is a Short Sale Right for You?

Elk Grove Short Sales – Is this the market of the moment?

Wachovia Short Sales Made Easy

For more information on Short Sales

If you are a seller and wish to contact us for a FREE consultation regarding a possible short sale on your home, please call us at (916) 230-0371 0371 or send email to Lori@ModeandDurhaM.com.

Search all Elk Grove homes here!

Search all Sacramento homes here!

Sacramento homebuyers, if you are looking at buying an older home in the Sacramento region you may qualify for a grant from Sacramento Association of Realtors for energy efficient improvements of $2,000. This grant program was funded by a $234,000 SAR fund and is believed to be the first of its kind in California.

To qualify, buyers must
* purchase home built in 1978 or older
* be represented by a SAR Realtor and Lender
* use a Federal Home Administration or Veterans Administration Energy Efficient Mortgage
* requires that a SMUD-certified contractor do the work.

It is estimated that 6 out every 10 homes in the Sacramento area were built before 1978. This should help many buyers that are purchasing the bank foreclosures that are in need of updating. The Energy Efficient Mortgages have been around since the early 1990′s and they allow buyers to roll the costs of updating the enery improvements of their homes into their home loans. Energy efficiency mortgages most commonly help buyers finance new air-conditioning systems, dual pane windows and insulation.

If you are a Sacramento or Elk Grove home buyer, and want more information on buying a home, make sure to check out our Buyer’s Resources.

Search All Sacramento Homes here!

Search All Elk Grove Homes here!

Lori Mode – Keller Williams Realty – Elk Grove

“Can you do a short sale on an investment property?” I am asked this by Sacramento area investors at least a few times every week. My answer – “Most definately”. We have sold and closed several Sacramento area investment properties through the short sale process.

So you purchased your investment property back at the height of the real estate boom…2005…thinking that negative cash flow wasn’t a big deal because of the appreciation you would be receiving over the next few years. The problem is no appreciation…in fact depreciation…and now after 3-5 years of paying the negative cash flow on the property, you are just about sucked dry. What to do? You should start by talking to a Sacramento short sale specialist along with your CPA and attorney. As a Sacramento area short sale specialist I know that the banks are accepting short sales on investment properties as we have been closing a couple each month this year.

First, let’s be clear on what a short sale is….Short Sales occur when borrowers sell their properties for amounts that are less than the amounts owed to the lender. So hypothetically, you purchased the property for $325,000 and owe $250,000 on a 1st with Bank of America. However, now the property is worth only $190,000; your PITI (principal, interest, taxes and insurance) payments alone are $1850, then add water, sewer, garbage, lawn care, property management and maintenance and you are in the hole at least $450+ each month. Your hours on your job have been cut back, your renter is having a hard time making their monthly rent, and honestly there is no prospect for it getting better soon……

So do you just stop making your payments?

Do you let the bank foreclose?

Do you file bankruptcy?

Do you use your credit cards to continue trying to keep your head above water?

No, first you need to look at your options and you do have the option of selling the property on a short sale.

However, things you want to consider as a Sacramento investor –

Did you exchange into this property? If so what might your tax ramifications be for selling? Remember you delayed your tax consequences when you completed your exchange. You must speak to your CPA or tax attorney about this one.

Are there other tax ramifications that you should know about? Real estate investors whose properties are worth less than the mortgage amount don’t get to take advantage of the special protections and tax benefits that Congress has bestowed upon homeowners who are in trouble with their primary residences. It is very important that you speak to your CPA immediately if you are considering a short sale on your investment property.

Do your tenants continue paying rent while you are not paying your mortgage payments?

How will the tenants respond when they realize you are selling the home on a short sale?

Other blogs to help educate yourself about short sales –

Elk Grove Short Sales – Important Questions Answered

Elk Grove Short Sales – Is this the market of the moment?

Wachovia Short Sales Made Easy

For more information on Short Sales

If you are a seller and wish to contact us for a FREE consultation regarding a possible short sale on your Sacramento investment property, please call us at (916) 230-0371 or send email to Lori@ModeandDurhaM.com.

Search all Elk Grove homes here!

Search all Sacramento homes here!