Re: California Judicial/Non Judicial concern


Posted by dr on January 25, 2009 at 23:44:25:
In Reply to: Re: California Judicial/Non Judicial concern
Posted by dr on January 25, 2009 at 23:28:00:In California, purchase money home loans are considered nonrecourse because lenders are prohibited from seeking a deficiency judgment against the borrower after a foreclosure sale of real property that secures a purchase money loan. CCP §580. A loan is nonrecourse if the lender's only remedy in case of default is to repossess the secured property (because the lender cannot reach the borrower's other assets to satisfy any shortfall). Under these circumstances, the unpaid principal balance of the mortgage is not seen as being "forgiven" or "cancelled" and does not cause the borrower to have cancellation of indebtedness income. Treas Reg §1.1001-2(a)(4)(i) and (c), Examples 7-8; IRS Letter Ruling 9302001. Thus, even if the Act were adopted as California law, it would not apply to those homeowners who had used purchase money indebtedness to acquire or substantially improve a principal residence. Such homeowners would not have cancellation of indebtedness income to exclude because their loans were considered nonrecourse in the first place.


C.C.P. § 580b precludes purchase money lenders and vendors from obtaining a deficiency judgment against the borrower after foreclosure.
In general, a purchase money loan acquires its character at the time the loan is made and retains its character absent subsequent waiver. Brown v. Jensen, 41 Cal. 2d 193, 197, 259 P.2d 425 (1953), cert. denied, 347 U.S. 905 (1954). A purchase money loan retains its character notwithstanding subsequent assignment of the mortgage and note. Ziegler v. Barnes, 200 Cal. App. 3d 224, 231 fn. 6, 246 Cal. Rptr. 69 (Cal. Ct. App. 1988).


Section 580b places the risk of inadequate security on the purchase money mortgagee. A vendor is thus discouraged from overvaluing the security. Precarious land promotion schemes are discouraged, for the security value of the land gives purchasers a clue as to its true market value. (Citations omitted). If inadequacy of the security results, not from overvaluing, but from a decline in property values during a general or local depression, section 580b prevents the aggravation of the downturn that would result if defaulting purchasers were burdened with large personal liability. Section 580b thus serves as a stabilizing factor in land sales.

Because of its strong public policy objective, the anti-deficiency protection cannot be altered or waived at the time the purchase money obligation is created or renewed. Palm v. Schilling, 199 Cal. App. 3d 63, 69, 244 Cal. Rptr. 600 (Cal. Ct. App. 1988). A seller's lien remains subject to the anti-deficiency protection even when it is subordinated to a subsequent refinance loan. Thompson v. Allert, 233 Cal. App. 3d 1462, 1466-67, 285 Cal. Rptr. 367 (Cal. Ct. App. 1991). After the lender has received the secured note, the lender can alter or modify its terms, extend or renew the terms of the note, or substitute other or additional security for the note. As long as the obligation is secured by the same property and remains substantially the same as when it was originally created, the purchase money limitations continue to protect the borrower. Jackson v. Taylor, 272 Cal. App. 2d 1, 5, 76 Cal. Rptr. 891 (Cal. Ct. App. 1969).

There is a lot more than that, and more to the point.
Hope that helps




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