Q: I need some advice. I lost my house to foreclosure back in 2009. I lost my job and had to walk away. I have since gotten back on my feet and am trying to get in a position to purchase a new home. This week, I got a notice from a collection company that I owe my old mortgage bank more than $100,000 plus interest. So I got online and pulled my credit report and, sure enough, there it is with my old bank reporting the debt. This week’s letter is the first I have heard about the money since I left the house. From your columns, I believed that if your house is foreclosed you don’t owe the bank any money. I’m at a loss to know what to do at this point.
A: There are a number of things going on here, so I’ll try let’s take them one at a time.
To begin, I’ve never said that if your house is foreclosed in California you automatically won’t be liable for any money the bank loses, called a “deficiency” in the business.
What I’ve said is if you only have one mortgage, or multiple loans if they are the original loans and you lived in the house, you won’t have liability in almost all circumstances.
However, and it’s a big “however,” if you had more than one loan on the house, there’s a possibility you’re on the hook.
There’s not enough time here to go back through it, but you can look up some old columns on the subject.
Suffice it to say again that it’s very possible a foreclosed homeowner is liable for a deficiency.
To know for sure, I’d have to have more specific information about the financing on your house, when you bought the house, when you got the loan or loans, and the method the bank used to foreclose.
Let’s assume for the sake of argument that you really are liable for a deficiency, which is far from certain.
There is generally a four-year statute of limitations for suing you for non-payment of the debt. The lawsuit would be based upon a breach of a written contract that carries the four-year limitation.
The problem you’re going to encounter is there’s not much you can do about it at this point.
A statute of limitations only helps you if you actually get sued. It’s a defensive measure.
A credit collection company that makes its living by keeping a percentage of any money it collects can continue to hound you, even reporting it on your credit report.
I can’t even begin to count the number of people I’ve spoken with over the past couple of years who have no liability under California law but continue to be pursued by collection companies.
Fortunately for consumers, a new law went into effect in California on Jan. 1 that could help.
Senate Bill 426 is an attempt by the state to stop the type of thing you’re experiencing, but only if you really don’t owe the money.
The law simply reinforces existing laws that already eliminate deficiency liability in a majority of foreclosures.
What the law says in a nutshell is if the foreclosed homeowner doesn’t owe any money under the law, the foreclosing bank cannot say that they do.
In other words, if you don’t owe the money, the bank can’t hound you. Nor can they turn you over to a collection company or report the deficiency on your credit report.
Of course, a law is only as good as your ability to enforce it, which could get expensive.
Under this scenario, it would likely be up to you to sue the bank for violation of SB 426.
You would first have to show that you had no legal liability under existing law. But if you prevailed you would be entitled to collect your attorney fees and costs from the bank as well as the possibility of punitive damages.
On that note, never count on punitive damages as your retirement plan. Despite what you may read in the news, punitives are rare and far between.
So the first thing you should do is determine for sure that you owe no money. Then figure out step two.
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like to have answered in this column you can contact him at [email protected].