SCENARIO #3) What if there is more than one loan on my property and the junior loan is recourse?
If there is a Home Owners Association, the dues should be kept current. Here’s a visual flowchart of your alternatives. Thanks to SB 931, you will not face a deficiency jugment from the 1st lien. You may need to pay capital gain tax if there is a low cost basis and insufficient exemptions. After a foreclosure or short sale, your recourse 2nd loan will convert to unsecured debt, similar to credit card debt. You will still owe the full amount of the recourse 2nd loan; it will NOT be eliminated! This junior lender might pursue a deficiency judgment against you in court. If, in the face of a deficiency judgment for the full amount of the junior loan, you would realistically declare bankruptcy, consider doing this prior to the foreclosure to get a couple more months of rent-free living and increase the likelihood of short sale success. A short sale is an excellent test to find out if bankruptcy is needed or not. If the junior loan approves the short sale, bankruptcy may not be needed, but y
