Wednesday, March 4, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Dropping subsequent mortgages when upside down

By
From page C3 | December 22, 2012 |

Q: Hi Mr. Jones.  I’m a very long-time reader, but a first-time writer.  I’ve always appreciated the great, practical advice you give. Now I need some.
Like everybody else, my house is upside down. I owe about twice what the place is worth. I have three mortgages, with the last one being a line of credit I got back in 2006.
I work for the county and so my income is going to go down a lot next year. I was barely keeping my head above water, and these furloughs are going to drown me. I need to get out of this house or at least cut my payments drastically. I know you aren’t a big fan of loan modifications, so I’m not really asking that question. But a friend of mine came up with an idea. She suggested that I keep making my mortgage payments to my first mortgage and just stop making them to the second and third mortgages. She apparently heard about this on some radio talk show. How would this work? Do you advise it?
A:  Well, not to be too cynical, but what I advise is not taking legal advice from a talk show radio personality.
The truth is that I hear this all the time. And while it may be good advice for a few, like those who know they’re going to die soon or be moving to a nonextraditable country in the next year or two, for most people it’s a mistake.
First, you have to understand the basic underlying legal principle. In California, when someone has a lien on your property they must foreclose on before they can sue you for any balance that’s owed. Known as the One Action Rule, it has the unintended consequence of preventing second and third mortgage holders from going after any money when you’re in a real estate market such as exists today.
A simple illustration would be valuable here.
Let’s say homeowners Bob and Carol have three loans on their house. They owe $200,000 on the first, $100,000 on the second, and $50,000 on the third.
And let’s assume for the sake of argument that all three loans are recourse loans, meaning the banks will ultimately be allowed by law to sue Bob and Carol for any money they lose.
Now, if the home is currently only worth $150,000, it’s not even worth what Bob and Carol owe on the first. This is an extremely common situation. So, let’s say Bob and Carol stop paying the second and the third. The first won’t foreclose because they’re getting paid. The second and third won’t foreclose for two reasons. First, they would foreclose and have to give all of the money to the first mortgage. They’d get none of it, not even their expenses. Second, under California’s nonjudicial foreclosure law, the bank that actually does the foreclosure becomes a nonrecourse loan. So even if the second foreclosed, all that would happen is they’d have to cough up the money to the first mortgage and would then be prevented from suing. So what would be the point?
The simple answer is that paying only the first would keep you in the house for, maybe, many years with a much lower payment, although your credit would continue to plummet.
However, and this is where the death or leaving the country scenarios come in,  sooner or later the house will appreciate to something above what you owe to the first. At some point, likely many years from now, the second will foreclose. So what you’d really be doing is forestalling the inevitable.
That may sound good right now, but, unless you die or leave the country, you will ultimately suffer a foreclosure and lawsuits. And probably long after the economy is finished healing and nobody is losing their home to foreclosure anymore. That would leave you with the option to file for bankruptcy protection.
Today we have the option to short sell our upside down homes. Short sales are temporary. Believe me when I predict that when the economy improves, short sales will go away. I know because I saw the same thing happen 20 years ago.
If you need to get out from under your mortgage, there is no better time than now. The new short sale laws on the books that I’ve discussed in other columns will protect you from lawsuits. Plus the minute the property is gone you can begin to rebuild your credit and possibly buying another home while the prices are still low.
So the decision you’re playing with is, in my professional opinion, far more complicated than the talk show person suggested, and you need to consider all of the consequences very carefully.
LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

  • Recent Articles

  • Enter your email address to subscribe and receive notifications of new posts by email.

  • .

    Solano News

    Police shut down Fairfield street after shooting

    By Glen Faison | From Page: A1, 15 Comments | Gallery

     
    County honors Meadows Trigueiro as Woman of the Year

    By Kevin W. Green | From Page: A1, 1 Comment | Gallery

     
    Celebrity chef motivates Armijo students

    By Susan Winlow | From Page: A2 | Gallery

     
    Caltrans reschedules work on J-Mack Ferry

    By Kevin W. Green | From Page: A4

     
    State schedules work on Highway 12

    By Kevin W. Green | From Page: A4

    Bridge work to shut down Highway 12 east of Rio Vista

    By Kevin W. Green | From Page: A4

     
    Highway 12 Association to meet this month

    By Kevin W. Green | From Page: A4

     
     
     
    Robots, raucous businessmen set to arrive on big screen

    By Amy Maginnis-Honey | From Page: A7

     
    Teen hit by SUV remains in hospital

    By Glen Faison | From Page: A9

     
     
     
    Fairfield police log: March 2, 2015

    By Susan Hiland | From Page: A12, 1 Comment

    Fairfield police log: March 1, 2015

    By Susan Hiland | From Page: A12

     
    Fairfield police log: Feb. 28, 2015

    By Susan Hiland | From Page: A12

    Suisun police log: March 2, 2015

    By Susan Hiland | From Page: A12

     
    Suisun City police log: March 1, 2015

    By Susan Hiland | From Page: A12

    Suisun City police log: Feb. 28, 2015

    By Susan Hiland | From Page: A12

     
    Enrollment of non-residents to be capped at some UC campuses

    By The Associated Press | From Page: A13

    .

    US / World

    California survey finds Sierra snowpack far below normal

    By The Associated Press | From Page: A1

     
    Ex-CIA chief admits sharing military secrets with mistress

    By The Associated Press | From Page: A12, 1 Comment | Gallery

     
    Mines, bombs slow Iraqi advance on Islamic State-held Tikrit

    By The Associated Press | From Page: A13

    India orders TV stations not to give rapist a platform

    By The Associated Press | From Page: A13

     
    Health officials perplexed by vaccination skeptics

    By The Associated Press | From Page: A13, 1 Comment

    Lawmakers taking another crack at expanding gun checks

    By The Associated Press | From Page: A13

     
    Agents target industry helping Chinese women have US babies

    By The Associated Press | From Page: A13 | Gallery

     
    Family of girl declared brain-dead sues Oakland hospital

    By The Associated Press | From Page: A13

    US marshals say man killed by Los Angeles police was wanted

    By The Associated Press | From Page: A13, 2 Comments | Gallery

     
    72 passengers reach settlements in Asiana crash

    By The Associated Press | From Page: A13

    Netanyahu warns US ‘bad deal’ would put Iran on nuclear path

    By The Associated Press | From Page: A13

     
    .

    Opinion

    Minority outreach that works

    By Jennifer Rubin | From Page: A11, 3 Comments

     
    Israelis worry about inequality, not Iran

    By Daniel Gordis | From Page: A11, 3 Comments

     
    Editorial cartoon: March 3-4, 2015

    By Daily Republic Syndicated Content | From Page: A11

     
    .

    Living

    Today in History: March 4, 2015

    By The Associated Press | From Page: A2

     
    Community Calendar: March 4, 2015

    By Susan Hiland | From Page: A2

    Mushrooms are nutrient-packed, with a deep, savory flavor

    By The Washington Post | From Page: B5

     
    Get ready to add white to the rainbow of produce you eat

    By The Associated Press | From Page: B5

     
    Horoscopes: March 4, 2015

    By Holiday Mathis | From Page: B7

    My husband and I want different things in our retirement

    By Kathy Mitchell and Marcy Sugar | From Page: B7

     
    .

    Entertainment

    Apollo to celebrate Holiday birthday

    By The Associated Press | From Page: A7

     
    Oprah’s Chicago studios to close down

    By The Associated Press | From Page: A7

    Fashion week moves Milan to Paris

    By The Associated Press | From Page: A7

     
    TVGrid

    By Daily Republic Syndicated Content | From Page: A8

    .

    Sports

    Bumgarner hit hard in spring debut, A’s beat Giants 9-4

    By The Associated Press | From Page: B1

     
     
    Vanden girls roll, advance to SJS championship game

    By Marcus Lomtong | From Page: B1

    No ‘floating rubbish’ collection for Olympic sailing venue

    By The Associated Press | From Page: B2

     
    Cal senior Reshanda Gray named Pac-12 Player of the Year

    By The Associated Press | From Page: B2

    Rudy Gay, Kings hand Knicks worst loss of season, 124-86

    By The Associated Press | From Page: B2

     
    Cubs’ scramble on Wrigley Field hits bump when mayor balks

    By The Associated Press | From Page: B2

    Raiders officially release S Tyvon Branch

    By The Associated Press | From Page: B2

     
    Trooper: Fingerprints show victim in Hernandez’s rented car

    By The Associated Press | From Page: B2

     
    Play ball! Quickly! Baseball tries to speed game this spring

    By The Associated Press | From Page: B2

    Australian rugby star Hayne signs 3-year deal with 49ers

    By The Associated Press | From Page: B2

     
    Maid: Hernandez messed with security camera after killing

    By The Associated Press | From Page: B2

    Pacquiao big hit so far in Vegas sports books vs Mayweather

    By The Associated Press | From Page: B2

     
    Kings bring back former player Divac in front-office role

    By The Associated Press | From Page: B2

    .

    Business

    Oil glut could soon lead to plummeting prices

    By The Associated Press | From Page: A8, 2 Comments

     
    .

    Obituaries

    Robert C. Thierry

    By Nancy Green | From Page: A4

     
    Garland (Curly) Henry Tackett

    By Nancy Green | From Page: A4

    Otto Vasak

    By Nancy Green | From Page: A4

     
    John Henry Fechter, Jr.

    By Susan Hiland | From Page: A4

    Jacqueline Mendes

    By Nancy Green | From Page: A4

     
    .

    Comics

    Baldo

    By Daily Republic Syndicated Content | From Page: B6

     
    Garfield

    By Daily Republic Syndicated Content | From Page: B6

    Frank and Ernest

    By Daily Republic Syndicated Content | From Page: B6

     
    Blondie

    By Daily Republic Syndicated Content | From Page: B6

    Pickles

    By Daily Republic Syndicated Content | From Page: B6

     
    Zits

    By Daily Republic Syndicated Content | From Page: B6

    Beetle Bailey

    By Daily Republic Syndicated Content | From Page: B6

     
    Rose is Rose

    By Daily Republic Syndicated Content | From Page: B6

    Dilbert

    By Daily Republic Syndicated Content | From Page: B6

     
    Get Fuzzy

    By Daily Republic Syndicated Content | From Page: B6

    B.C.

    By Daily Republic Syndicated Content | From Page: B6

     
    Peanuts

    By Daily Republic Syndicated Content | From Page: B6

    For Better or Worse

    By Daily Republic Syndicated Content | From Page: B6

     
    Sally Forth

    By Daily Republic Syndicated Content | From Page: B6

    Wizard of Id

    By Daily Republic Syndicated Content | From Page: B6

     
    Baby Blues

    By Daily Republic Syndicated Content | From Page: B6

    Bridge

    By Daily Republic Syndicated Content | From Page: B7

     
    Word Sleuth

    By Daily Republic Syndicated Content | From Page: B7

    Cryptoquote

    By Daily Republic Syndicated Content | From Page: B7

     
    Sudoku

    By Daily Republic Syndicated Content | From Page: B7

    Crossword

    By Daily Republic Syndicated Content | From Page: B7