According to trusted
advisor and Real Estate Law attorney Steven J Beede at BPE Law (BPELaw.com) the
possibility of a deficiency in California is still possible under certain loan
types. Steve writes in his July 2nd Blog:
“In 2010, the California
Association of Realtors (CAR) created a new Disclosure addressingHomeowner
Liability after Foreclosure which actually included references to short sale as well. In that Disclosure, CAR
noted that these California laws might not preclude deficiency liability on
loans insured or guaranteed by VA or FHA. CAR’s analysis was apparently based upon two
Federal cases:Herlong-Sierra Homes, Inc. v US (1966); and US v Rossi (1965).
However, in both of these casesforeclosure occurred in Federal Court, not
California, and therefore California’s protections did not apply.”
Steve continues with
“The recent communication being circulated cites another Federal case: Carter v
Derwinski (1993) which addressed whether a State prohibition against recourse
(such as SB458) could bar the VA from suing for deficiency after a State
foreclosure action. The Court said that the VA did have this right based upon
the fact that in a VA loan, the VAseparately guarantees the lender from loss on
the loan. Therefore, if there is a loss, VA has recourse against the borroweron
the guarantee, not on the loan itself. Significantly, the Court was very
divided in its decision. Similarly, in 1998, another Federal Court relying on
the Carter case, ruled that Farmer’s Home Administration (FmHA) had deficiency
recourse following an Arizona trustee Sale (US v Rezzonico). “
Steve goes on to say
“Although my research to date has not discovered an FHA case with a similar holding, the
rationale in both cases above would lead to a similar conclusion for FHA insured loans.
In Summary, if the loan
is guaranteed or insured by the Federal Government, the Federal agency may
pursue deficiency recourse regardless of a State’s laws barring recourse after
a Trustee Sale. Whether that same result would occur after a short sale is not
at all clear and does not appear to have been decided by any cases as yet.”
Now many of you have FHA and VA loans. Are there grounds for
concern? Sure there is. The key to the process is getting the West Sacramento Short Sale approval letter
that specifically states “the debt is being settled for less and the lender is
waiving their right to seek a deficiency”. To date all of our FHA and VA West Sacramento Short Sale approval letters
have had this verbiage. Again, not all West Sacramento Short Sale Specialists are
the same. Make sure yours is aware of these terms. And if you need a good Real
Estate Attorney call BPE Law in Sacramento at 916-966-2260. Tell them you heard
about them from me.
Is a West Sacramento Short Sale Right for Me?
Call me and let’s find out.
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