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6/02/2010

Be careful when doing a short sale OWNER OCCUPIED only

 California Code Civil Procedure Section 580(b). applies to purchase money loans and purchase money loans on residential 1-4 units owner-occupied.
The code states:
"No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser."
Applies to two types of loans:
1. purchase money loans and
2. seller carry back loans.
Seller carry back loans are not entitled to seek a deficiency judgment against the borrower.† However, there are exceptions under California (case law) that does permit the seller to recover against the borrower under certain circumstances.
As for the purchase money loans - no deficiency if it is owner-occupied, residential one to four.†
What does that exclude? vacation homes,
home-equity lines of credit (HELOC),
investment properties where the borrower does not reside there, apartment buildings more than 4 units.
These loans are commonly referred to as "non-recourse" loans because lenders on these types of loan know their only recourse is the property.

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