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Kingside
Participant[quote=SK in CV
The only time I have ever seen a claim for a deficiency after a non-judicial foreclosure on commercial property is by a junior lien holder, when the non-judicial foreclosure was by a senior lien holder. I’m unaware of any exemption to California’s one-action rule that applies to commercial property. It might exist. Can you cite that exemption?[/quote]The one action rule (CCP 726) is not really an anti-deficency statute, it is a statute that requires a lender to proceed with foreclosure before seeking other remedies such a personal liability. The anti-deficency protection you are talking about, no deficiency claim against the borrower after a non-judicial forecloure, is CCP 580d.
But CCP 580d only applies to the borrower, not “true” third party guarantors. This issue has been litigated often in California, but if you want to see a recent application and interesting explanation in a recent California published decision, Talbott v. Hustwit (2008)164 Cal.App.4th 148 is a good one:
http://www.lawlink.com/research/CaseLevel3/85760
And to be clear, a “true guarantor” is a third party, not the borrower itself. I stand by my statement that most commercial real estate loans I see that involve LLCs/corps also involve personal guarantees.
Participant[quote=SK in CV
The only time I have ever seen a claim for a deficiency after a non-judicial foreclosure on commercial property is by a junior lien holder, when the non-judicial foreclosure was by a senior lien holder. I’m unaware of any exemption to California’s one-action rule that applies to commercial property. It might exist. Can you cite that exemption?[/quote]The one action rule (CCP 726) is not really an anti-deficency statute, it is a statute that requires a lender to proceed with foreclosure before seeking other remedies such a personal liability. The anti-deficency protection you are talking about, no deficiency claim against the borrower after a non-judicial forecloure, is CCP 580d.
But CCP 580d only applies to the borrower, not “true” third party guarantors. This issue has been litigated often in California, but if you want to see a recent application and interesting explanation in a recent California published decision, Talbott v. Hustwit (2008)164 Cal.App.4th 148 is a good one:
http://www.lawlink.com/research/CaseLevel3/85760
And to be clear, a “true guarantor” is a third party, not the borrower itself. I stand by my statement that most commercial real estate loans I see that involve LLCs/corps also involve personal guarantees.
Participant[quote=SK in CV
The only time I have ever seen a claim for a deficiency after a non-judicial foreclosure on commercial property is by a junior lien holder, when the non-judicial foreclosure was by a senior lien holder. I’m unaware of any exemption to California’s one-action rule that applies to commercial property. It might exist. Can you cite that exemption?[/quote]The one action rule (CCP 726) is not really an anti-deficency statute, it is a statute that requires a lender to proceed with foreclosure before seeking other remedies such a personal liability. The anti-deficency protection you are talking about, no deficiency claim against the borrower after a non-judicial forecloure, is CCP 580d.
But CCP 580d only applies to the borrower, not “true” third party guarantors. This issue has been litigated often in California, but if you want to see a recent application and interesting explanation in a recent California published decision, Talbott v. Hustwit (2008)164 Cal.App.4th 148 is a good one:
http://www.lawlink.com/research/CaseLevel3/85760
And to be clear, a “true guarantor” is a third party, not the borrower itself. I stand by my statement that most commercial real estate loans I see that involve LLCs/corps also involve personal guarantees.
Participant[quote=investor]Putting morality aside, most commercial loans are non-recourse and have been for many years. .[/quote]
?
Most commercial loans, certainly most real estate commercial loans that involve LLCs/Corporate entities, are personally guaranteed by the principal(s). In California, those personal guarantees are very much recourse, even after the lender forecloses non-judicially and credit bids to get a deficiency.
And the lenders do sue on them.
Participant[quote=investor]Putting morality aside, most commercial loans are non-recourse and have been for many years. .[/quote]
?
Most commercial loans, certainly most real estate commercial loans that involve LLCs/Corporate entities, are personally guaranteed by the principal(s). In California, those personal guarantees are very much recourse, even after the lender forecloses non-judicially and credit bids to get a deficiency.
And the lenders do sue on them.
Participant[quote=investor]Putting morality aside, most commercial loans are non-recourse and have been for many years. .[/quote]
?
Most commercial loans, certainly most real estate commercial loans that involve LLCs/Corporate entities, are personally guaranteed by the principal(s). In California, those personal guarantees are very much recourse, even after the lender forecloses non-judicially and credit bids to get a deficiency.
And the lenders do sue on them.
Participant[quote=investor]Putting morality aside, most commercial loans are non-recourse and have been for many years. .[/quote]
?
Most commercial loans, certainly most real estate commercial loans that involve LLCs/Corporate entities, are personally guaranteed by the principal(s). In California, those personal guarantees are very much recourse, even after the lender forecloses non-judicially and credit bids to get a deficiency.
And the lenders do sue on them.
Participant[quote=investor]Putting morality aside, most commercial loans are non-recourse and have been for many years. .[/quote]
?
Most commercial loans, certainly most real estate commercial loans that involve LLCs/Corporate entities, are personally guaranteed by the principal(s). In California, those personal guarantees are very much recourse, even after the lender forecloses non-judicially and credit bids to get a deficiency.
And the lenders do sue on them.
Participant[quote=davelj]
I really don’t think there are a whole lot of *true* strategic defaulters in SFRs. I think most of the people who say they are strategically defaulting – that is, they can afford to pay but simply choose to default anyway – are not. I think that most of these folks are probably close to hitting the wall financially and just throw in the towel earlier than they might have to from a technical standpoint. They want to make it look like a business decision (“Hey, I can afford it – I’m just going to screw over the lender. Ha!”), but I think most of that is bluster. Most of these folks are headed toward dire financial straights. I’m sure there are some *true* strategic defaulters, but I doubt it’s a huge number if you peeled back the onion of these folks’ finances. I bet that most, although not all, of these folks can’t really afford the homes they’re living in.[/quote]I am not sure I agree. This is anecdotal, but what I am finding in my practice is that there are many decent folks in good professions with good income who after a few years of feeding the alligator on a significantly underwater property, start looking at their options. They learn from friends, co-workers, the Internet, government programs, etc. that it is no longer a huge social stigma to walk away.
When you can rent a better place for a quarter of your monthly mortgage nut and you are 2-3 hundred thousand under water, it is not rocket science to decide that your credit will come back before your equity. The decision is made easier when the lender/servicer denies a loan mod because the applicant who is current has good income, or offers a crappy mod. It is an especially easy decision when the the loan is non-recourse, even if they can afford the payment based on their income.
I don’t think most of these people are scamming the system. they are making rational business decisions based on what is best for themselves and their family, even though they can afford the payment. Many of these folks got into the property as part of their retirement plan, but are now realizing that sticking with it may cost them their retirement.
Participant[quote=davelj]
I really don’t think there are a whole lot of *true* strategic defaulters in SFRs. I think most of the people who say they are strategically defaulting – that is, they can afford to pay but simply choose to default anyway – are not. I think that most of these folks are probably close to hitting the wall financially and just throw in the towel earlier than they might have to from a technical standpoint. They want to make it look like a business decision (“Hey, I can afford it – I’m just going to screw over the lender. Ha!”), but I think most of that is bluster. Most of these folks are headed toward dire financial straights. I’m sure there are some *true* strategic defaulters, but I doubt it’s a huge number if you peeled back the onion of these folks’ finances. I bet that most, although not all, of these folks can’t really afford the homes they’re living in.[/quote]I am not sure I agree. This is anecdotal, but what I am finding in my practice is that there are many decent folks in good professions with good income who after a few years of feeding the alligator on a significantly underwater property, start looking at their options. They learn from friends, co-workers, the Internet, government programs, etc. that it is no longer a huge social stigma to walk away.
When you can rent a better place for a quarter of your monthly mortgage nut and you are 2-3 hundred thousand under water, it is not rocket science to decide that your credit will come back before your equity. The decision is made easier when the lender/servicer denies a loan mod because the applicant who is current has good income, or offers a crappy mod. It is an especially easy decision when the the loan is non-recourse, even if they can afford the payment based on their income.
I don’t think most of these people are scamming the system. they are making rational business decisions based on what is best for themselves and their family, even though they can afford the payment. Many of these folks got into the property as part of their retirement plan, but are now realizing that sticking with it may cost them their retirement.
Participant[quote=davelj]
I really don’t think there are a whole lot of *true* strategic defaulters in SFRs. I think most of the people who say they are strategically defaulting – that is, they can afford to pay but simply choose to default anyway – are not. I think that most of these folks are probably close to hitting the wall financially and just throw in the towel earlier than they might have to from a technical standpoint. They want to make it look like a business decision (“Hey, I can afford it – I’m just going to screw over the lender. Ha!”), but I think most of that is bluster. Most of these folks are headed toward dire financial straights. I’m sure there are some *true* strategic defaulters, but I doubt it’s a huge number if you peeled back the onion of these folks’ finances. I bet that most, although not all, of these folks can’t really afford the homes they’re living in.[/quote]I am not sure I agree. This is anecdotal, but what I am finding in my practice is that there are many decent folks in good professions with good income who after a few years of feeding the alligator on a significantly underwater property, start looking at their options. They learn from friends, co-workers, the Internet, government programs, etc. that it is no longer a huge social stigma to walk away.
When you can rent a better place for a quarter of your monthly mortgage nut and you are 2-3 hundred thousand under water, it is not rocket science to decide that your credit will come back before your equity. The decision is made easier when the lender/servicer denies a loan mod because the applicant who is current has good income, or offers a crappy mod. It is an especially easy decision when the the loan is non-recourse, even if they can afford the payment based on their income.
I don’t think most of these people are scamming the system. they are making rational business decisions based on what is best for themselves and their family, even though they can afford the payment. Many of these folks got into the property as part of their retirement plan, but are now realizing that sticking with it may cost them their retirement.
Participant[quote=davelj]
I really don’t think there are a whole lot of *true* strategic defaulters in SFRs. I think most of the people who say they are strategically defaulting – that is, they can afford to pay but simply choose to default anyway – are not. I think that most of these folks are probably close to hitting the wall financially and just throw in the towel earlier than they might have to from a technical standpoint. They want to make it look like a business decision (“Hey, I can afford it – I’m just going to screw over the lender. Ha!”), but I think most of that is bluster. Most of these folks are headed toward dire financial straights. I’m sure there are some *true* strategic defaulters, but I doubt it’s a huge number if you peeled back the onion of these folks’ finances. I bet that most, although not all, of these folks can’t really afford the homes they’re living in.[/quote]I am not sure I agree. This is anecdotal, but what I am finding in my practice is that there are many decent folks in good professions with good income who after a few years of feeding the alligator on a significantly underwater property, start looking at their options. They learn from friends, co-workers, the Internet, government programs, etc. that it is no longer a huge social stigma to walk away.
When you can rent a better place for a quarter of your monthly mortgage nut and you are 2-3 hundred thousand under water, it is not rocket science to decide that your credit will come back before your equity. The decision is made easier when the lender/servicer denies a loan mod because the applicant who is current has good income, or offers a crappy mod. It is an especially easy decision when the the loan is non-recourse, even if they can afford the payment based on their income.
I don’t think most of these people are scamming the system. they are making rational business decisions based on what is best for themselves and their family, even though they can afford the payment. Many of these folks got into the property as part of their retirement plan, but are now realizing that sticking with it may cost them their retirement.
Participant[quote=davelj]
I really don’t think there are a whole lot of *true* strategic defaulters in SFRs. I think most of the people who say they are strategically defaulting – that is, they can afford to pay but simply choose to default anyway – are not. I think that most of these folks are probably close to hitting the wall financially and just throw in the towel earlier than they might have to from a technical standpoint. They want to make it look like a business decision (“Hey, I can afford it – I’m just going to screw over the lender. Ha!”), but I think most of that is bluster. Most of these folks are headed toward dire financial straights. I’m sure there are some *true* strategic defaulters, but I doubt it’s a huge number if you peeled back the onion of these folks’ finances. I bet that most, although not all, of these folks can’t really afford the homes they’re living in.[/quote]I am not sure I agree. This is anecdotal, but what I am finding in my practice is that there are many decent folks in good professions with good income who after a few years of feeding the alligator on a significantly underwater property, start looking at their options. They learn from friends, co-workers, the Internet, government programs, etc. that it is no longer a huge social stigma to walk away.
When you can rent a better place for a quarter of your monthly mortgage nut and you are 2-3 hundred thousand under water, it is not rocket science to decide that your credit will come back before your equity. The decision is made easier when the lender/servicer denies a loan mod because the applicant who is current has good income, or offers a crappy mod. It is an especially easy decision when the the loan is non-recourse, even if they can afford the payment based on their income.
I don’t think most of these people are scamming the system. they are making rational business decisions based on what is best for themselves and their family, even though they can afford the payment. Many of these folks got into the property as part of their retirement plan, but are now realizing that sticking with it may cost them their retirement.
ParticipantThe article states most of the usual arguments that the lender side tends to make in opposition to allowing cram downs in chapter 13 cases. Those are nothing new.
I agree with the statement that cram down provisions could only be feasable in the context of some broader bankruptcy reform for different reasons then she states.
Under current law, wholly unsecured junior mortgages can be stripped away and put into the unsecured classification (meaning little or no pay out) when approving chapter 13 plans. But under current law, a debtor may proceed under chapter 13 only where the debtor’s unsecured debts total less than $336,900.
So what you see now is that debtors are in a Catch 22. Yes, they are permitted to strip away junior liens as unsecured at the conclusion of their plan where the property has tanked under chapter 13, but often as soon as they elect to do so their unsecured debt exceeds $336,900 and they no longer qualify for chapter 13 relief and their case gets dismissed.
Unless this limitation was increased (a new and different legislative battle) allowing senior liens to be crammed down would result in the same problem. Chopping a portion of 1st lien debt into unsecured status would often result in too much unsecured debt to qualify for Chapter 13 relief.
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