Short Sale, Foreclosure and Strategic Default


Wednesday, August 8, 2007

pre-foreclosure - non-recourse loan?

Does the second have right to go after the borrower. It seem that there is a basic rule and a caveat

The basic rule is that 580b protection would apply in standard transactions with sold out juniors.

However the 9th circuit has made a ruling which seems to leave this area of the law somewhat open to good arguments. In the Prestige case the court distinguished cases in which the security was exhausted by a senior sale without giving us much further guidance.

I am just thinking this through but we seemed to be left with the the strange conclusion that an upside down homeowner worried about deficiency may be "incentivised" to make sure the second is "sold out".

Also note this information does not necessarily apply to non standard transactions or construction loans. And seriously please have your situation reviewed by a California attorney. The above information is a quick overview at best. If you were my client I would do a great deal more research before giving any "advice".

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