Re: Produce the Note Strategy in CA

Posted by Steve in CA on June 27, 2009 at 14:25:12:

In Reply to: Re: Produce the Note Strategy in CA posted by fp on June 27, 2009 at 12:33:05:

Thanks again for the response. Your comments lead me to do some further investigation in a California Real Estate Priciples book. You are right about the Deed of Trust, like a mortgage it is the security instrument and not the negotiable instrument, which is seperate and would call out the terms of the loan including the interest rate, payment schedule, etc. Without this I guess a borrower could not be in default for missing a few payments.

However, since in California, Deeds of Trust are used instead of mortgages the lender can force the sale of the property through a Trustee's Sale without going through the judicial process. As discussed previously in these situations the borrower could initiate a lawsuit requiring proof that the lender has the note in order to have the Trustee's Sale.

This may possibly put the borrower at risk because under a Trustee's Sale the lender cannot obtain a deficiency judgement, but if the borrower forces the foreclosure through the judicial process the lender could get a deficiency judgement. But this is a bit unclear. From what I read a lender cannot get a deficiency judgement against a borrower if the loan is a purchase money loan secured by a trust deed. But any hard money loan such as a home equity loan, debt consolidation, or even refinance could be subject to a deficiency judgement. Most people here have refinanced recently, but it appears that these are also secured with a deed of trust. But since these are not technically purchase money loans used at the time of purchase of the property, I'm not sure if they would be protected. I guess I need to do some more research.

Thanks again for your help.

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