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Strategies & Market Trends : Waiting for the big Kahuna
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To: Peter V who wrote (89255)7/31/2009 1:46:13 PM
From: Elroy Jetson  Read Replies (2) of 94695
 
In this case my friend simply walks away from his original purchase mortgage and buys the home down the street.

But in practice, as you likely know, there are virtually no judicial foreclosures in California as lenders find their recovery is larger by choosing the standard trust deed transfer.

Let's take my friend as an example, say if he had refinanced. By choosing a judicial foreclosure the lender no longer has replaced a specific claim against the house with a general claim against all his assets.

Let's say my friend then files for bankruptcy. The lender cannot generally cannot seize money in his SEP-IRA and other retirement accounts leaving them with perhaps $20k in bank accounts an underwater house and a car to go after. After the bankruptcy exemption, and especially if there were other creditors, you can easily see that the home lender can end up with a far smaller recovery in a judicial foreclosure than with a standard foreclosure.

Worst of all, the lender must decide to pursue a judicial or trust deed foreclosure prior to knowing the true current state of their borrowers debts and assets. No one I know has ever heard of a judicial foreclosure of residential real estate in California.
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