subject: Short Sales and SB1187 [print this page] Short Sales and SB1187 Short Sales and SB1187
Many of the professionals that provide distressed homeowners with short sale help were disappointed at the veto of SB 1187. For California homeowners, this bill would have provided protections against some of the creditors that have turned out to be a major factor in the crash of the real estate markets. For supporters of the veto, the bill would have altered an existing contract and was therefore untenable. No matter what side of the fence you're on, the veto does have some significant consequences.
Many homeowners who took advantage of the very loose credit during the early 2000s didn't realize that they were foregoing an important protection when they borrowed against their homes. Home equity loans and additional mortgages that weren't entirely used for the purchase of the house removed this protection. Because SB 1187 was vetoed, these homeowners are now subject to much more liability than they may expect if they go through the mortgage foreclosure process.
If you only have one mortgage that is a purchase-money mortgage, and the bank forecloses, you can only be held liable for the property and the house. In essence, you only give up what it turned out that you couldn't afford. If you happen to have taken out second mortgages or other loans, however, you can be held liable for the total amount of those loans. This means that, even if you go through the entire mortgage foreclosure process, you may still have lenders coming after you for loans that were taken out against the house. Going after you may include seizing property or other actions make possible by a delinquency lawsuit.
If you're going to pursue a short sale, be sure to get short sale help from someone who knows these laws well. You'll also need to get information related to taxes. In some cases, the IRS may decide that any money you ended up not owing is the same as taxable income, giving you yet another bill that you have to pay. It's important to get all of these details straightened out before you decide upon anything.
In some cases, you may be able to get the other lenders to give up their interest in the house or in collecting full payment by offering them a percentage. Part of the short sale help that professionals provide you with is establishing your financial hardship in a way that banks understand. Banks may not be known for their compassion, but they do understand numbers and so do lenders. If you have nothing left to take, the lenders may agree to give up their interest.
If the short sale timeline proceeds as planned, you may be able to walk away from the bad loan and the house debt free. Remember that there may be complications involved, however, if you owe other agencies money. You can also short sale investment property, though it may be harder to convince the bank. In any case, SB 1187's being vetoed changed the playing field considerably for homeowners.