Monday, January 26, 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.
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like answered in this column you can contact him at SolanoScene@TJones-Law.com.
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

.

Solano News

Teen finds entrepreneurial path at young age

By Susan Winlow | From Page: A1, 2 Comments | Gallery

 
Time for Relay for Life kickoff event

By Tony Wade | From Page: A2

 
Suisun Senior Center offers monthly dance

By Susan Hiland | From Page: A3

 
 
Wedding Faire offers one-stop browsing for couples

By Amy Maginnis-Honey | From Page: A3, 1 Comment | Gallery

Crab feed tradition continues this week

By Susan Hiland | From Page: A3

 
Local government agencies post meeting times

By Susan Hiland | From Page: A3

Fairfield schedules workshop on downtown plan

By Susan Hiland | From Page: A3

 
.

US / World

 
Santa Ana winds knock out power to thousands in California

By The Associated Press | From Page: A4

 
Boy shot by Los Angeles deputies treated for graze wound

By The Associated Press | From Page: A4

US gas prices fell 13 cents per gallon, but expected to rise

By The Associated Press | From Page: A4

 
2 Marines identified in deadly California helicopter crash

By The Associated Press | From Page: A4

Ukraine: Phone calls prove rebels attacked city, killed 30

By The Associated Press | From Page: A5

 
Zambia: Edgar Lungu sworn in as new president

By The Associated Press | From Page: A5

Greek radical left wins election, threatening market turmoil

By The Associated Press | From Page: A5

 
‘Potentially historic’ storm headed for Northeast

By The Associated Press | From Page: A5

Balloon crew launches in bid to break 2 major records

By The Associated Press | From Page: A5

 
Obama: Counterterrorism operations in Yemen not affected

By The Associated Press | From Page: A5

Obama to seek wilderness designation for Alaska refuge

By The Associated Press | From Page: A5

 
Navy wants to increase use of sonar-emitting buoys

By The Associated Press | From Page: A5

 
Zoo offers creepy way for lovelorn to get even with exes

By The Associated Press | From Page: A9

 
.

Opinion

Democracy or republic?

By Earl Heal | From Page: A8, 7 Comments

 
Editorial Cartoon: Jan. 26, 2015

By Daily Republic Syndicated Content | From Page: A8

 
Do elected officials get it?

By Letter to the Editor | From Page: A8, 16 Comments

 
.

Living

Community Calendar: Jan. 26, 2015

By Susan Hiland | From Page: A2

 
Today in History: Jan. 26, 2015

By The Associated Press | From Page: A2

Horoscope Jan. 27, 2015

By Holiday Mathis | From Page: B5

 
My sister is jobless and homeless and I’m not sure how to help

By Kathy Mitchell and Marcy Sugar | From Page: A7

 
Horoscope Jan. 26, 2015

By Holiday Mathis | From Page: A7

.

Entertainment

TVGrid Jan 26

By Daily Republic Syndicated Content | From Page: B6

 
Miss Colombia crowned Miss Universe in Miami

By The Associated Press | From Page: B7

‘Birdman’ tops SAG Awards, Redmayne upsets Keaton

By The Associated Press | From Page: B7

 
Complete list of winners at 21st annual SAG Awards

By The Associated Press | From Page: B7

TVGrid Jan 27

By Daily Republic Syndicated Content | From Page: B7

 
.

Sports

Serena Williams to meet Cibulkova in Aussie Open quarters

By The Associated Press | From Page: B1

 
Watt gets 2 turnovers, dances in friendly Pro Bowl

By The Associated Press | From Page: B1

Tavares scores 4, Team Toews outscores Team Foligno, 17-12

By The Associated Press | From Page: B1

 
Curry leads Warriors to 19th straight home win

By The Associated Press | From Page: B1

 
Family attorney: Cubs great Ernie Banks died of heart attack

By The Associated Press | From Page: B2

Bill Haas pulls away to win Humana Challenge

By The Associated Press | From Page: B2

 
Jeff Gordon to be Fox guest analyst during XFINITY season

By The Associated Press | From Page: B2

Sherman doubts any punishment ahead for Patriots

By The Associated Press | From Page: B2

 
AP Source: Browns WR Josh Gordon fails another drug test

By The Associated Press | From Page: B2

 
AP Interview: Selig says MLB could expand internationally

By The Associated Press | From Page: B2

Coach K gets 1,000th win as No. 5 Duke tops St. John’s 77-68

By The Associated Press | From Page: B2

 
Quinn has led Seattle to record-setting defense

By The Associated Press | From Page: B2

Chip Ganassi Racing’s ‘star car’ wins Rolex 24 at Daytona

By The Associated Press | From Page: B2

 
Patriots’ Browner gets a 2nd chance at a Super Bowl ring

By The Associated Press | From Page: B2

 
.

Business

.

Obituaries

Don Johnson

By Nancy Green | From Page: A4, 8 Comments

 
Thomas Clark

By Nancy Green | From Page: A4

.

Comics

Beetle Bailey Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Blondie Jan 27

By Daily Republic Syndicated Content | From Page: B4

Get Fuzzy Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Zits Jan 27

By Daily Republic Syndicated Content | From Page: B4

B.C. Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Peanuts Jan 27

By Daily Republic Syndicated Content | From Page: B4

For Better or Worse Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Dilbert Jan 27

By Daily Republic Syndicated Content | From Page: B4

Garfield Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Baby Blues Jan 27

By Daily Republic Syndicated Content | From Page: B4

Pickles Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Sally Forth Jan 27

By Daily Republic Syndicated Content | From Page: B4

Baldo Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Wizard of Id Jan 27

By Daily Republic Syndicated Content | From Page: B4

Rose is Rose Jan 27

By Daily Republic Syndicated Content | From Page: B4

 
Frank and Ernest Jan 27

By Daily Republic Syndicated Content | From Page: B4

Cryptoquote Jan 27

By Daily Republic Syndicated Content | From Page: B5

 
Bridge Jan 27

By Daily Republic Syndicated Content | From Page: B5

Crossword Jan 27

By Daily Republic Syndicated Content | From Page: B5

 
Word Sleuth Jan 27

By Daily Republic Syndicated Content | From Page: B5

Sudoku Jan 27

By Daily Republic Syndicated Content | From Page: B5

 
Wizard of Id Jan 26

By Daily Republic Syndicated Content | From Page: A6

Get Fuzzy Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
Beetle Bailey Jan 26

By Daily Republic Syndicated Content | From Page: A6

Pickles Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
Garfield Jan 26

By Daily Republic Syndicated Content | From Page: A6

B.C. Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
For Better or Worse Jan 26

By Daily Republic Syndicated Content | From Page: A6

Peanuts Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
Frank and Ernest Jan 26

By Daily Republic Syndicated Content | From Page: A6

Blondie Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
Baldo Jan 26

By Daily Republic Syndicated Content | From Page: A6

Baby Blues Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
Rose is Rose Jan 26

By Daily Republic Syndicated Content | From Page: A6

Sally Forth Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
Dilbert Jan 26

By Daily Republic Syndicated Content | From Page: A6

Zits Jan 26

By Daily Republic Syndicated Content | From Page: A6

 
Sudoku Jan 26

By Daily Republic Syndicated Content | From Page: A7

Cryptoquote Jan 26

By Daily Republic Syndicated Content | From Page: A7

 
Bridge Jan 26

By Daily Republic Syndicated Content | From Page: A7

Word Sleuth Jan 26

By Daily Republic Syndicated Content | From Page: A7

 
Crossword Jan 26

By Daily Republic Syndicated Content | From Page: A7