California Secured Debt Attorney
WHAT DOES “SECURED” MEAN?
Secured simply means that the obligation or debt has collateral that the creditor has rights to in the event the payment is not made. Typical “secured” transactions are auto and home loans. If you don’t make these payments, the car can be repossessed and the home foreclosed on. Other typical secured debts are jewelry purchases, timeshares, and sometimes even appliances such as a refrigerator.
WHAT IF I CAN’T AFFORD TO MAKE THE PAYMENTS ON MY SECURED DEBTS?
Autos: You must either find some way to pay off the auto loan, refinance it, consolidate it into an unsecured loan, or surrender it to the lender. Remember that the lender generally reserves the right to pursue any “deficiency” on the loan. That is, if there is still a loan balance after they repossess, refurbish, and resell the car; the lender can pursue you for that amount. This “deficiency balance” is now an unsecured debt (the security has been returned). Generally speaking, filing bankruptcy will not allow you to keep the vehicle without paying for it. Bankruptcy will allow you to escape any deficiency balance.
Personal Residence: You must either: refinance, sell the property, obtain a loan modification, or in some manner ultimately surrender the property (foreclosure or deed in lieu of foreclosure). Chapter 13 Bankruptcy is available to homeowners and may assist in allowing you to keep your home, but will not reduce the indebtedness. In California there are two ways a creditor can foreclose: judicial (use the courts) and non judicial (not use the courts). Most foreclosures are non judicial and when the creditor elects to use non judicial foreclosure, the creditor waives any right to any deficiency balance.
WHAT IS A “SHORT SALE”?
A short sale is when you sell your home for less than the amount owed. To complete a short sale your lender must approve the sale and agree to allow the property to be transferred even though the lender has not been paid in full. It is strongly suggested that you get legal advice on all the ramifications of a short sale. For example, the lender may reserve the right to pursue any deficiency against you. There may also be tax consequences to be aware of.
WHAT HAPPENS TO THE SECOND MORTGAGE WHEN I LOSE MY HOME TO FORECLOSURE?
If the money from the 2nd mortgage was either: 1) used to purchase the home; or 2) used to make substantial improvements to the home, the debt is no longer due. That is, the 2nd mortgage holder can no longer attempt to make you pay and the debt is, in net effect, extinguished. It is not uncommon for 2nd and 3rd mortgage holders to attempt to collect amounts after foreclosure and you should promptly consult an attorney to protect your rights.
ARE THERE TAX CONSEQUENCES TO FORECLOSURES, SHORT SALES?
There certainly can be consequences and it is highly recommended that you get tax advice any time your home will be transferred out of your name, be it by sale, short sale, foreclosure and even bankruptcy.