Second Lien Holders Reluctant to Let Borrowers Off the Hook
Last month Wells Fargo sued a San Diego woman after her home was foreclosed on last year. She had 2 loans and the second - $72K left on a HELOC - was wiped out in the foreclosure. Both loans were refinanced but she did not take out any cash. Nevertheless, Wells Fargo filed suit last month to collect the $72K owed on the second. Check out the Wall Street Journal article from last week that reported this story.
http://online.wsj.com/article/SB10001424052702304846504575177720824287204.html?mod=WSJ_Real+Estate_LeftTopNews
Tax and legal experts who I’ve spoken with say that CA law protects most home owners who are foreclosed on or who complete a short sale (selling a home for less than what is owed with the deficit being forgiven) from being sued by a lender if the mortgages are “purchase money loans” meaning they were taken out to buy the property. This is quite different from home loans that have been refinanced, like the San Diego woman being sued. Many people have been wondering whether banks would come after home owners who refinanced but did not take cash out. At least in this case, we know the answer.
Congress and the administration are addressing this issue of second lien holders’ actions over the next couple of weeks. Stay tuned…
