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one action rule re: foreclosing second mortgagee
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timing is important for more than 108 purposes. What I see is that the typical bankruptcy lawyer kneejerk reaction is to file before foreclosure. On the cases I've worked on the bankruptcy lawyers were astonished at how hazardous implementing that reaction can be. It's not unusual to discover that in a case involving multiple properties the filing should come after some foreclosures and before others, or after all of the foreclosures. I require that the debtor's tax return preparer sign off on the plan and prepare pro forma returns for the year of foreclosure/filing so that there is continuity between the analysis and the reporting. Accountants typically are unaware of all of the issues and it's better to educate them before the facts are in concrete than after. Obviously in many cases you don't have the luxury of such detailed analysis, but in the cases where you don't have the resources for such analysis generally the analysis isn't as important and you just tell the client you're not a tax person and he/she/it is on their own.
Just remember that in the case of an individual it is the professional responsibility of every bankruptcy lawyer to warn the client that he/she has the right under certain circumstances to elect to terminate their income tax year under IRC 1398 as of the day of filing. You then tell the client you don't know squat about whether the election should be made and he/she is on their own in figuring that out. Many consumer bankruptcy lawyers write that into their retainer agreements. Otherwise you wind up like a law firm in Houston with a malpractice case in the Bankruptcy Reporter.
The post was migrated from Yahoo.
Great analysis Elmer, but one other thing, if you can answer, is the
timing of the bankruptcy filing following foreclosure in this or any
other state for the purpose of IRC 108 exception to debt forgiveness
taxation.
But, David's issue went to the very specific situation of a seller
carrying back paper, which under California law is nonrecourse.
>
> Be careful with your no deficiency conclusions if the property is
not in California even though your borrower is in California. I am
seeing a lot of cases in which the property is not in California even
though the debtor is and always has been in California, and there are
some surprises if you overlook the effect of foreign laws and
California choice of law laws. The surprises can be both pleasant and
not so pleasant. The conflict of laws issues in this context I've
found very interesting and often not necessarily intuitively apparent.
The distinctions involved have also a heavy tax importance because of
the difference in tax results between resolution of nonrecourse vs
recourse debt. Keep in mind that nonrecourse debt is debt which
cannot result in a deficiency under any circumstances, typically in
many states purchase money debt. The coincidence that there is no
deficiency after a nonjudicial foreclosure does not make a debt
nonrecourse for tax purposes. There is a conjunction of liability law
and tax law which many debtors are going to get stabbed by,
particularly as I said in the case of interstate activities. There is
also considerable complexity if the client is not technically the
borrower but is a guarantor, particularly in the interstate context.
California has a unique doctrine called the "sham guaranty" defense
which you don't find in Oregon, Arizona or Nevada, which are the
states you most often see popping up in these analyses, so picking
your fight venue could be pivotal (because in practice most courts
apply the law of the place where the court sits regardless of what
they pay lip service to with some notable exceptions in California
case in which debtors with out of state properties have been
unpleasantly surprised).
>
>
> Sent: Thursday, January 08, 2009 5:06 PM
> To: cdcbaa@yahoogroups.com
> Subject: RE: [cdcbaa] one action rule re: foreclosing second mortgagee
>
>
>
> no deficiency after non-judicial foreclosure sale.
>
>
> David A. Tilem
> Certified Bankruptcy Specialist*
> Law Offices of David A. Tilem (a debt relief agency)
> 206 N. Jackson Street, #201, Glendale, CA 91206
> Tel: 818-507-6000 Fax: 818-507-6800
>
> * Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
> Business bankruptcy specialist cert. by Amer. Bd. of Certification
> -----Original Message-----
Behalf Of jeffreycancilla
> Sent: Wednesday, January 07, 2009 3:01 PM
> To: cdcbaa@yahoogroups.com
> Subject: [cdcbaa] one action rule re: foreclosing second mortgagee
>
>
> If a second mortgage holder forecloses on the borrower's real property,
> would the second be allowed to pursue the borrower for any deficiency?
> In this case, the borrower purchased the property as owner-occupied
> residence from an individual, by way of obtaining a first mortgage from
> an institutional lender and financing the remainder of the purchase
> price by way of the second mortgage in favor of the individual.
>
The post was migrated from Yahoo.
Be careful with your no deficiency conclusions if the property is not in California even though your borrower is in California. I am seeing a lot of cases in which the property is not in California even though the debtor is and always has been in California, and there are some surprises if you overlook the effect of foreign laws and California choice of law laws. The surprises can be both pleasant and not so pleasant. The conflict of laws issues in this context I've found very interesting and often not necessarily intuitively apparent. The distinctions involved have also a heavy tax importance because of the difference in tax results between resolution of nonrecourse vs recourse debt. Keep in mind that nonrecourse debt is debt which cannot result in a deficiency under any circumstances, typically in many states purchase money debt. The coincidence that there is no deficiency after a nonjudicial foreclosure does not make a debt nonrecourse for tax purposes. There is a conjunction of liability law and tax law which many debtors are going to get stabbed by, particularly as I said in the case of interstate activities. There is also considerable complexity if the client is not technically the borrower but is a guarantor, particularly in the interstate context. California has a unique doctrine called the "sham guaranty" defense which you don't find in Oregon, Arizona or Nevada, which are the states you most often see popping up in these analyses, so picking your fight venue could be pivotal (because in practice most courts apply the law of the place where the court sits regardless of what they pay lip service to with some notable exceptions in California case in which debtors with out of state properties have been unpleasantly surprised).
The post was migrated from Yahoo.
no deficiency after non-judicial foreclosure sale.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
jeffreycancilla
Sent: Wednesday, January 07, 2009 3:01 PM
To: cdcbaa@yahoogroups.com
Subject: [cdcbaa] one action rule re: foreclosing second mortgagee
If a second mortgage holder forecloses on the borrower's real property,
would the second be allowed to pursue the borrower for any deficiency?
In this case, the borrower purchased the property as owner-occupied
residence from an individual, by way of obtaining a first mortgage from
an institutional lender and financing the remainder of the purchase
price by way of the second mortgage in favor of the individual.
Message
no deficiency after
non-judicial foreclosure sale.
David A.
Tilem
Certified Bankruptcy
Specialist*
The post was migrated from Yahoo.
No, any lender who completes a non-judicial foreclosure sale is barred from
seeking a deficiency balance - see CCP 580d.
James R. Selth
Weintraub & Selth, APC
12121 Wilshire Boulevard, Suite 1300
Los Angeles, California 90025
Telephone: (310) 207-1494
Facsimile: (310) 442-0660
E-Mail: jim@wsrlaw.net
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The post was migrated from Yahoo.
If a second mortgage holder forecloses on the borrower's real property,
would the second be allowed to pursue the borrower for any deficiency?
In this case, the borrower purchased the property as owner-occupied
residence from an individual, by way of obtaining a first mortgage from
an institutional lender and financing the remainder of the purchase
price by way of the second mortgage in favor of the individual.
The post was migrated from Yahoo.