Full question:
I lost my home in Calif. to foreclosure in 2008 and received a 'Cancellation of debt' and the 1099 stating the cancellation amount from the mortgage co. , the property was sold sometime in late 2009. Yesterday I received in the mail a notice that the my old mortgage co. had sold my old account to another firm in Texas and they are trying to collect on the old loan. Can they do this?
- Category: Real Property
- Subcategory: Foreclosure
- Date:
- State: California
Answer:
In California, "anti-deficiency" laws apply to certain protected borrowers. Under such laws, lenders will be barred, generally, from pursuing the borrowers personally for any excess amount of the secured debt left unpaid after a foreclosure sale (the "deficiency").
Section 580b specifically prohibits recovery of a deficiency from a borrower, who obtainedthe loan in order to purchase real property as a residence for the debtor, when the property contains one-to-four units and the property was used to secure the purchase loan (Home buyers who later refinance their home loans may risk losing their "anti-deficiency" protection).
Section 580b also bars a deficiency as to sellers, who sold the secured property to the borrower, and who "carried back" a loan as part of the purchase price, as "seller financing".
Code of Civil Procedure Section 580d further prohibits deficiency judgments from otherwise unprotected borrowers, when a lender has foreclosed upon the secured property by a private, "power-of-sale" foreclosure proceeding, pursuant to the terms of the deed of trust. If the lender wishes to obtain a deficiency judgment against an unprotected borrower for the unpaid loan balance, Section 580d requires the lender to initiate a judicial foreclosure according to the statute.
There are exceptions. For example, an otherwise protected borrower might still be subject to further claims by the lender after foreclosure if the borrower induced the lender into issuing the loan by use of fraud, or where the borrower has committed "bad faith" waste as to the secured property (i.e reckless, intentional, or malicious failure to physically maintain the property).
The answer depends in part on whether or not federal law required the lender to issue the 1099 or not. A lender may issue the form even though it has not actually cancelled the debt.
For further discussion, please see:
http://www.cofad1.state.az.us/opinionfiles/CV/CV080840.pdf
http://ann-lawyer.com/component/content/article/51.html
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
