2. CCP 580 changed the whole short sale landscape in California. It has 2 main parts –
a. Lenders must released deficiency if short sale is approved and closes; and
b. The law says sellers may not contribute their money to the short sale.

In order to present options to you, we would need to know if your HELOC or home equity line of credit is a recourse or non recourse loan.
If it is non recourse, you may not be exposed to an approximately $250,000 deficiency after a foreclosure.
If it is a recourse loan you may be.

3. Many, if not most, senior lenders will never let you pay a big chunk of money on the HUD to the second.
If you attempt to pay a chunk of the money outside of the HUD you, your Realtor, your negotiator and/or escrow may be
violating RESPA… which is a very serious Federal law.
Even if your Realtor was willing to risk his license, it is unlikely the title company will go for such an arrangement.

4. Therefore for most sellers with two loans, it is now absolutely imperative that you
set up you plan strategy prior to commencing the short sale.
You can not walk into negotiations with a second when you have recourse loans without a backup plan.
We know that seconds are holding out for more than the first is willing to pay in at least half our files.
You must know your options. There are ways around these problems.
But these are serious concerns. We have no idea how Realtors can be advising people with two loans about their options.

For instance one option you should consider is a short payoff.
You negotiate with the second prior to starting the short sale.
With and experienced attorney it can work especially well when you have renters and you can continue to stay current with the first.
However, it may take time with some banks.

There are a host of other options.
May we suggest you consider attending one of our webinars.

Since you already started you short sale, you may wish to reinstate your senior loan if negotiations are not going well.
If you have a recourse second, you must set up a plan b.
If your short sale does not close, you may be looking at a 250,000 dollar personal liability.

you would be a good candidate for two step short sale in which you negotiate a short payoff with a second and then do a short sale.

http://underwaterrealestate.com/california-two-step-short-sale/

We will answer the question as if the real estate was located in California. Prior to any short sale or any legal analysis you must be aware of which states laws govern the transaction.

1. If your short sale closed on a California Residence after July 15th 2011. I will create a separate post. CCP 580e has changed the way second lenders are doing business and it is not good for many homeowners with recourse second loans.

2. If your short sale closed before July 15th 2011, in Calfornia, you have an interesting question.

a. If you have non recourse loans, you may argue that there is California case law which says that a homeowner may not waive their CCP 580b protections after the fact. That case involved Bank of America and loan modification so it is not directly on point… but there is a reasonable chance that line of reasoning would be applied to short sales.

b. If you had a recourse second loan, you might be able to argue that when the second took money and released their lien that was their one action under California law. See the One Action Rule.

c. You should also carefully review your approval letters to see if you were released from not only the lien but also the note or the loan. And even in your case if the lender released the Mortgage… that ambiguity may be good for you. Note I am also a licensed attorney in Florida. In a Mortgage Theory state like florida the mortgage is similar to the lien not the loan. However, in California you may argue that people in the industry refer to the note as a Mortgage.

In summary, it would be your job to find reason why you were not only released from the lien but also the remaining loan balance.

Finally, as a attorney I must mention one more thing. This was a secured transaction involving very complex web of laws. Professional Realtors who care about your future would never advise you about the legal ramifications of release documents. Professional Realtors have attorneys on their team, to protect your interests.

This is offically no fun. Our short sale recorded (date withheld). I had reassurances for multiple people that our purchase money HELOC from Chase was non-recourse. (Not from any laywer in writing though) Now their collection company, (name withheld for privacy reasons), is calling. They say because we didn’t foreclose that we are not protected. I don’t see anywhere in CCP 580b that seconds are excluded. Have you seen any case law yet?