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West Los Angeles, Beverly Hills, Santa Monica, Venice, Sylmar, San Fernando, Lake View Terrace, Simi Valley, Porter
Ranch, Granada Hills, Mission Hills, Knollwood, Pacoima, Panorama City, Arleta, Sun Valley, Sunland, Tujunga, La
Crescenta, Altadena, La Canada Flintridge, Warner Center, Winnetka, Valley Glen, Verdugo City, Montrose, Sierra
Madre, Arcadia, Monrovia, Westlake Village, Thousand Oaks, Agoura Hills, Calabasas, Tarzana, Encino, Sherman Oaks,
Valley Village, Studio City, Toluca Lake, Universal City, West Toluca Lake, Eagle Rock, San Marino, Beverly Glen,
Los Feliz, Silver Lake, Atwater Village, Echo Park, Glassell Park, Cypress Park, Highland Park, Alhambra, San
Marino, San Gabriel, Pacific Palisades, Brentwood, Sawtelle, Culver City, Jefferson Park, Westlake, East Los
Angeles, Monterey Park, Mar Vista, Canyon Country, Santa Clarita, Westwood, Marina Del Rey, Inglewood, Valencia,
Newhall, Castaic, Saugus, Moorpark, Lake Balboa
J & N Realty, Inc. -- real estate, property, planned unit development (PUD), townhouse, townhome, hoa, condo,
condominium, homeowner association, common interest development (CID) management services in Los
Angeles
California Code of Civil Procedure and Foreclosures
Property
law is governed by state law. As such, federal law looks to California property law to determine the answers on
recourse or nonrecourse financing.
California
has a complicated set of rules concerning foreclosures and alternate rules for foreclosures.
Judicial
or Non-judicial Proceeding
The
primary method of foreclosure in California involves what is known as a non-judicial foreclosure sale. This type
of foreclosure does not involve any court action. Instead a foreclosure sale proceeds pursuant to a
"power-of-sale" contained in a deed of trust. (A deed of trust grants a security interest in real property to a
creditor.) Non-judicial foreclosure sales in California have stringent notice requirements and the deed of trust
must contain power-of-sale language in order to use this type of foreclosure.
If
a creditor completes a foreclosure through non-judicial means, it is barred from recovering a deficiency
judgment against the debtor, regardless of whether the loan was recourse (meaning the creditor potentially has
recourse to all the property owned by the debtor) or nonrecourse (meaning the creditor's remedy is limited to
the sale of collateral securing, and application of the proceeds towards payment of, its debt).
In
the case of recourse loans, lenders can forego their rights under the power-of-sale in a deed of trust and file
a lawsuit in a "judicial foreclosure proceeding." If they prevail, the court will grant a judgment of
foreclosure. CCP Section 725(a) provides a beneficiary or trustee named in a deed of trust or mortgagee named in
a mortgage with power-of-sale upon real property has the right to file a lawsuit to foreclose.
CCP
Section 726, commonly known as the "one-action rule," restricts the remedies available to lenders. CCP Section
726(a) provides that, "There can be but one form of action for the recovery of any debt or the enforcement of
any right secured by a mortgage upon real property…" Moreover, CCP Section 726 requires the lender to first look
to the sale of the collateral security for satisfaction of its debt and prevents the lender from bringing more
than one action against the debtor. Therefore, if the creditor prevails on its lawsuit for foreclosure, the
court will direct the sale of the encumbered property and the application of the proceeds to payment of the
creditor's costs and indebtedness. If the proceeds from the sale fail to satisfy the costs of the foreclosure
and indebtedness, the creditor can apply within three months following the sale for a deficiency judgment. Upon
such application, and establishment of a deficiency, the court will render a money judgment against the debtor
for the amount of the deficiency.
California
law bars deficiency judgments for loans incurred to pay all or part of the purchase price of buildings
consisting of one to four residential units, providing the borrower is an occupant. In other words, debt
incurred to purchase owner-occupied residential property in California having no more than four residential
units is nonrecourse, even if the building contains up to three rental units besides the borrower's personal
residence. Moreover, California law bars deficiency judgments for loans where the seller of the property
financed the sale.
A
debtor is treated as having sold or exchanged foreclosed on property when he transfers it to his creditor in
discharge of his debt. In a foreclosure sale of property subject to
a mortgage or deed of trust, the amount realized includes the amount of the indebtedness securing the property.
But the amount realized on a foreclosure sale involving a recourse
liability does not include any portion of the indebtedness forgiven by the creditor. However, if the fair market
value (FMV) of the property is less than the cancelled debt, the amount realized by the debtor includes the
cancelled debt up to the FMV of the property.
If
the loan is recourse indebtedness and the debtor incurs cancellation of indebtedness income (CODI), IRC Section
108 provides certain exceptions in recognition of that income. One of the exceptions applies where the taxpayer
was insolvent (total liabilities exceed total assets) when the CODI was realized. The exclusion only applies up
to the amount of insolvency, i.e., to the extent the liabilities exceed the FMV of the assets. Others exceptions
are available for the cancellation of Qualified Real Property Business Indebtedness, the cancellation of
Qualified Farm Indebtedness, or court approved debt cancellation while the debtor is in a Chapter 11 bankruptcy.
However, California law does not conform to all of the provisions currently available in IRC Section
108.
Where
a nonrecourse debt is cancelled in exchange for a transfer of the property securing the debt, the transfer is
treated as a sale or exchange of the property and the amount realized is the amount of the debt, even if the
amount of the debt is more than the FMV of the property. Gain is recognized to the extent the debt securing the
property exceeds the adjusted basis of the property.
In
instances where the FMV of a property falls significantly below the balance owing on a loan secured by that
property, a lender may consent to the borrower's sale of the property to a buyer for less than the full amount
of the loan and forgive part of the loan (commonly referred to as a "short sale"). The forgiven part of the
indebtedness would be subject to the rules mentioned above and the exceptions described below. A modified
version of IRC Section 108(h) excluded CODI resulting from foreclosures or short sales of qualified principal
residences for California tax purposes in 2007 and 2008, but does not apply to any foreclosure or short sale
that occurred on or after January 1, 2009.
Under
federal law, there is an exclusion of $2 million for foreclosure gain on a principal residence incurred before
2013. The exclusion is reported on IRS Form 982. California has not conformed to this
exclusion.
In
addition, pursuant to IRC Section 121, individuals may exclude up to $250,000 ($500,000 for married persons
filing jointly) of capital gain realized from the sale or exchange of a principal residence. California conforms
to IRC Section 121, although the excluded amounts are less for sales occurring on or before October 22,
2004.
In
instances where the lender forgives part of its indebtedness (regardless of whether the loan is recourse or
nonrecourse), but does not require a surrender or sale of the property, the forgiven portion of the indebtedness
is taxable pursuant to IRC Section 61(a)(12). However, that income may be subject to exclusion by one of the
exceptions provided in IRC Section 108. The primary method of foreclosure in California involves what is known
as non-judicial foreclosure. This type of foreclosure does not involve court action.
J & N Realty, Inc. -- real estate, property, planned unit development (PUD), townhouse, townhome, hoa, condo,
condominium, homeowner association, common interest development (CID)management in Los
Angeles
Los
Angeles, Downtown Los Angeles, Van Nuys, North Hollywood, Woodland Hills, Canoga Park, Reseda, San Fernando
Valley, Northridge, Chatsworth, North Hills, West Hills, Hollywood, Burbank, Glendale, Pasadena, West Hollywood,
West Los Angeles, Beverly Hills, Santa Monica, Venice, Sylmar, San Fernando, Lake View Terrace, Simi Valley, Porter
Ranch, Granada Hills, Mission Hills, Knollwood, Pacoima, Panorama City, Arleta, Sun Valley, Sunland, Tujunga, La
Crescenta, Altadena, La Canada Flintridge, Warner Center, Winnetka, Valley Glen, Verdugo City, Montrose, Sierra
Madre, Arcadia, Monrovia, Westlake Village, Thousand Oaks, Agoura Hills, Calabasas, Tarzana, Encino, Sherman Oaks,
Valley Village, Studio City, Toluca Lake, Universal City, West Toluca Lake, Eagle Rock, San Marino, Beverly Glen,
Los Feliz, Silver Lake, Atwater Village, Echo Park, Glassell Park, Cypress Park, Highland Park, Alhambra, San
Marino, San Gabriel, Pacific Palisades, Brentwood, Sawtelle, Culver City, Jefferson Park, Westlake, East Los
Angeles, Monterey Park, Mar Vista, Canyon Country, Santa Clarita, Westwood, Marina Del Rey, Inglewood, Valencia,
Newhall, Castaic, Saugus, Moorpark, Lake Balboa
property management
property management service
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homeowner association management service
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townhome association management service
real estate property management service
common interest development management service
planned unit development property management service
hoa management
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pud management service
cid management service
hoa
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real estate
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j & n realty
Los Angeles condominium condo townhouse
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