Whether a borrower can engage in a strategic default depends on whether the borrower lives in a state that has consumer protection statutes known as "anti - deficiency" statutes. Anti - deficiency laws are designed to protect the homeowner from being personally liable for loans secured by their residence when the home is "underwater" i.e. " when the principal balance on the loans are in excess of the value of the property
In many states, some form of consumer protection has been enacted by the state legislature. This prevents banks from suing homeowners for deficiencies. These laws typically apply to single family owner occupied residences.
In California, a strategic default is possible because of enactment of Code of Civil Procedure section 580b. This statute which prohibits a personal judgment against the debtor is set forth below:
"No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser."
In layman's terms this means that a homeowner who secures a "purchase money" loan, which means a loan used to purchase his home, cannot be sued by his bank on the loan that is secured by the home.
You will also note that this section only applies to a "dwelling of not more than four families" which in essence means that if you live in and own and duplex, triplex or fourplex, this anti - deficiency statute applies to you.
While strategic defaults are permissible in many states, depending on the nature of the loan and property, you should consult with an attorney in your state to find out if your state has such statutes permitting strategic defaults and whether or not the statutes apply to you.
So if your personal residence is "underwater" in the state like California and it is secured by a "purchase money" loan, you can safely "walk away" from the mortgage and its financial obligation without fear of being sued by your lender.
After making the determination, that you are in an anti - deficiency state, a strategic default is up to you.
It is certainly nice to know that you do have choices. However, be clear not everyone can simply "walk away" from their mortgage. It is best that you seek legal advice from a competent real estate attorney in your state before you make the decision to "walk away."
This is an article by attorney Mitchell Reed Sussman. Mitchell is a California real estate attorney specializing in real estate, foreclosure and bankruptcy.
In many states, some form of consumer protection has been enacted by the state legislature. This prevents banks from suing homeowners for deficiencies. These laws typically apply to single family owner occupied residences.
In California, a strategic default is possible because of enactment of Code of Civil Procedure section 580b. This statute which prohibits a personal judgment against the debtor is set forth below:
"No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser."
In layman's terms this means that a homeowner who secures a "purchase money" loan, which means a loan used to purchase his home, cannot be sued by his bank on the loan that is secured by the home.
You will also note that this section only applies to a "dwelling of not more than four families" which in essence means that if you live in and own and duplex, triplex or fourplex, this anti - deficiency statute applies to you.
While strategic defaults are permissible in many states, depending on the nature of the loan and property, you should consult with an attorney in your state to find out if your state has such statutes permitting strategic defaults and whether or not the statutes apply to you.
So if your personal residence is "underwater" in the state like California and it is secured by a "purchase money" loan, you can safely "walk away" from the mortgage and its financial obligation without fear of being sued by your lender.
After making the determination, that you are in an anti - deficiency state, a strategic default is up to you.
It is certainly nice to know that you do have choices. However, be clear not everyone can simply "walk away" from their mortgage. It is best that you seek legal advice from a competent real estate attorney in your state before you make the decision to "walk away."
This is an article by attorney Mitchell Reed Sussman. Mitchell is a California real estate attorney specializing in real estate, foreclosure and bankruptcy.
About the Author:
Want to find out more about walking away from your mortgage, then visit attorney Mitchell Reed Sussman's site on how to "walk away" from your mortgage without being sued by your bank.
No comments:
Post a Comment