The Law Office of Robert B. Jacobs

Foreclosure

“Foreclosure” is a big word. There’s a lot of uncertainty associated with it. People are often unsure of exactly what foreclosure is, or what it means, or what is does. They often don’t know how it will affect their credit, or if they will ever have credit again. They don’t know what the Bank might do to their other assets or accounts. They often aren’t sure whether or not the bank can garnish their wages or take other steps against them without advance notice.

In reality, foreclosure is a “remedy” that a lender has for getting repayment on a loan. A foreclosure is not the same as a judgment. A foreclosure doesn’t allow a bank to start garnishing the wages of a borrower. Nor can a bank take other real estate, or cars, or other tangible property in connection with a foreclosure.

A foreclosure generally occurs when a loan has not been repaid according to its terms. Most loans are evidenced by a loan agreement, or “Promissory Note.” Such loan agreements are often “secured” by a “Mortgage” or “Deed of Trust.” (A “mortgage” is nearly identical to a “Deed of Trust.” In California nearly all lenders use Deeds of Trust instead of Mortgages). If a secured loan isn’t repaid on time, then most lenders will have a right to “foreclose” on the “security.” If the “security” is a borrower’s home, then that borrower stands to lose their home through a foreclosure sale, or auction.

Foreclosure law is complex. In many instances a borrower will not be liable for the unpaid balance due on the loan after the foreclosure sale is held. But in some instances, a borrower may be liable for unpaid amounts due on the loan - especially if there is more than one loan secured by the property. There can be significant tax consequences associated with a foreclosure - especially if the loan on the property has been refinanced and cash was taken out to pay for expenses not associated with the property.

Most foreclosures involve a lot of money, and a lot of debt. In some instances a foreclosure is the best option for a borrower. But in many instances a borrower may be better off with a short sale than with a foreclosure. In some instances a borrower may be better off with a deed in lieu of foreclosure if the Bank will accept it. But in other situations, a foreclosure or short sale may actually be preferable to a deed in lieu of foreclosure.

There is a lot of information on the internet about foreclosures and short sales. But each State has their own specific laws with respect to foreclosure liability, and the laws of one state may not apply to another state. In addition, much of the information on the internet is not organized in a comprehensive, logical, ordered sequence. As a result, internet searches may yield a false sense of security or completeness when in actuality other considerations are present.

Persons who are either involved in or facing foreclosure are at a critical financial juncture in their lives. Almost without exception, persons involved in foreclosure would do well to consult experienced, competent legal counsel about the considerations involved in foreclosure or short sale. The tax and liability savings from good advice can result in savings of tens or even hundreds of thousands of dollars in appropriate cases.

Foreclosure cases are unique. Sometimes the best strategy depends on the facts of each case. In some situations, it may be best to file a lawsuit with an injunction to stop the foreclosure. In other situations, a property may best be saved through filing a petition in Bankruptcy. In other cases, it may be best to negotiate directly with the lender. The determination as to the best strategy to use is best made in consultation with experienced, competent legal counsel.

Robert B. Jacobs has lectured extensively on foreclosure law to Real Estate Brokers and Agents, Members of Civic Clubs, Professional Organizations and others. He has lectured to attorney bar associations on Foreclosure and Short Sale law, and he has appeared on National Public Radio and KDOW radio about foreclosure and short sale issues. He is available for consultation on all foreclosure and short sale transactions and issues.