Q: I read your column some time ago when somebody who walked away from their house got sued by the bank for the money the bank lost after the foreclosure. Now I’m trying to figure out how to get out from under this giant mortgage. I got a loan modification earlier this year, but it just wasn’t enough help. It’s not that I don’t want to keep paying. But I can’t afford to keep doing it. I’m afraid I have the type of loans that a bank can sue on. But I’ve read all the paperwork three times and can’t find where it talks about the ability to sue me at all. My simple question is, what am I looking for in the paperwork?
A: The answer of whether or not you can get sued is not in any of your loan paperwork. It’s a matter of California law.
You knew the answer wasn’t going to be simple.
Regular readers should recall that the basic question has been addressed many times in this column over the past several years. The reason it keeps coming up is because the answer is not only far from simple, it keeps changing.
Without rehashing the standard rules, all of which are subject to exceptions, let me address your question directly.
There are three facts, at least for starters, I’d need to know about your home, your mortgages and your modification before I could give you a definite answer.
I’m assuming, for the sake of this column, that you live in the property. That means the loans, at one time, were purchase money loans.
Purchase money loan is a legal term of art. It refers to the original loan or loans placed on a residential property the buyer intends to live in and are for the purpose of acquiring the property.
Purchase money loans are said to be nonrecourse, meaning the bank can’t sue for any money it loses during a foreclosure or short sale.
Almost everyone who bought a home to live in had a purchase money loan at one time, which leads to the second fact I’d need to know.
Have you refinanced one or both of your mortgages prior to getting a loan modification?
In most cases where a loan modification has been granted, no matter how insignificant the modification was, the answer is no.
Typically, loan modifications are given to people who bought at the height of the market and/or have crazy loans that are getting ready to reset to a much higher rate. It indicates the bottom fell out of the market before the homeowner had a chance to refinance into a conventional loan.
So I’m going to assume your loans are original.
The problem, and the great unknown here, is whether the loan modification resulted in a refinance under the law. Generally they don’t, but there are exceptions.
It’s all determined by the paperwork your lender had you execute to get the modification. There won’t be anything in there specifically, but the types of papers will give clues as to whether or not the nature, and therefore your liability, changed.
There are many types of liability in our current real estate world. Frankly, of more concern right now are tax liability issues which have changed this year. And, unlike legal liability issues, some of the answers remain far from clear.
My point is that it’s complicated and, I’m afraid, getting even more complicated.
See, I told you it wouldn’t be simple.
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 Tim at [email protected]