I understand that California foreclosure law was written, or at least tidied, up by lawyers. But was it also written for the benefit of just lawyers too? And does it have to be so damn complex? Some folk aren’t even sure whether California is a recourse or non-recourse State.
Legislation in the golden state provides for two types of loans – recourse and non-recourse. In the case of a recourse loan, the borrower may continue to have liability even after a judicial foreclosure sale – the opposite applies in the case of a non-recourse loan where no further liability exists.
Could anything be simpler to understand? Perhaps not in the mind of the legislators who conceived it, but certainly a great deal more complex in its implications after the lawyers had sunk their teeth into it.
By way of example, a short sale (which is voluntary) is not the same as a foreclosure sale (which is not voluntary). In the case of the former, the borrower agrees, while in the latter case they (presumably) do not, and their property it wrestled away from them and sent down to the foreclosure yard for sale to the best offer.
What this means is that the same Californian rules that provide a measure of protection to borrowers under foreclosure may not be of any assistance at all to a distressed underwater Californian who resorts to a short sale.
This means that borrowers can literally be worse off after they pre-empt foreclosure with a short sale, because the Golden State is not always a non-recourse State either.
The laws that determine borrower liability in California after foreclosure or short sale are complicated, and cash-strapped borrowers who decide to figure out a way through these on their own – thereby avoiding expensive professional advice – may well discover that they have bitten off more than they can easily chew. And that’s without mentioning the receiver of our taxable revenues who doesn’t give a damn about personal finances following either short sale or foreclosure.
Borrowers are often ignorant of such matters, and can easily blunder into further financial catastrophe as a result. By the time they wake up, the deed is often done, meaning that it is way too late to restructure a deal in a tax-efficient manner. The law is complicated, some folk say unnecessarily so. Borrowers must take advice from their local housing office, or perhaps even a lawyer if they can afford one, to ensure that their short sale is structured in such a way that optimizes their position afterwards, thereby avoiding further tax and other liabilities.
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