The first version of the law was enacted in 1870 (16 Stat. 251). The Anti-Deficiency Act (Pub.L. 97–258, 96 Stat. 923) was first enacted in 1884. A fictitious guarantee can release a guarantor. A « notional guarantee » exists when the principal debtor and the surety share an « essential identity ». 9 Under Article 2787 of the Civil Code, a surety promises to vouch for the fault, loss or miscarriage of `another person` is a guarantor. Thus, if a principal debtor claims to assume additional liability as a guarantor, it does not guarantee the debt of « someone else » and nothing is added to the principal obligation. 10 The signatories need not be identical to justify « fraud ». The fact that the names « on the dotted line » on the promissory note and trust deed, on the one hand, and on the guarantee agreement, on the other, are different does not exempt the question of Article 2787, since « the alleged guarantors against whom an action has been brought could be nothing more than principal debtors under another name ». 11 If a disability protection law is in force, the lender may in fact recover only the property itself and the proceeds of subsequent sales.
They can often end in losses because, under these laws, they cannot force the borrower to settle disputes. For more information on the requirement of the Antideficiency Act, see Transmission of Antideficiency Act Reports to the Comptroller General of the United States B-304335, 8. March 2005 Just because the bank cannot take independent action against the borrower in a separate lawsuit for the deficit does not mean that the borrower does not suffer. First, the borrower loses the home during foreclosure. Second, the borrower`s credit history is negatively affected, usually for at least seven years. In this email, we define the fictitious guarantee and show its application in case of shortage. In two subsequent emails, we will 1) detail how the courts have perceived the assertion of false warranty by various guarantors, and 2) discuss the implications of false warranty as a litigation strategy. The bogus collateral defense prevents lenders from circumventing anti-default prohibitions by relegating true principals to the position of guarantors. Thus, if the guarantor is indeed the principal debtor, he or she enjoys the same indispensable protection of disability protection laws as the customer.
The California real estate market has declined sharply since 2007. With this sharp decline, commercial real estate lenders have turned to the people who have guaranteed these commercial loans for a good reason. Not only can projects be underwater and therefore unable to repay that debt, but the lender generally cannot compensate for a borrower`s deficiency due to California`s anti-shortage legislation. This does not apply to guarantors and, as a result, lenders have deliberately made guarantees an important tool in many real estate transactions, especially so that the guarantor can be held liable to cover any deficiencies. Warranty agreements are long, detailed, and virtually exempt from any conceivable defense. If the profits from the forced sale do not satisfy the mortgage debt, the lending company may sometimes take legal action to force the borrower to pay the difference between the debt and the proceeds of the foreclosure sale. This is called an action for defects or a judgment of default. For example, if the forced sale raised $9,000, but the mortgage company owes $10,000, it can file a default judgment to force the borrower to pay the remaining $1,000. Anti-deficiency protection. In California, a creditor`s right to collect a loan secured by a trust deed on real property is limited by various anti-deficiency laws, including Code of Civil Procedure Section 580a (which requires a loan at fair market value), 580b (limitation of default judgments on mortgages as purchase money security), 580d (limitation of default judgments on seizures under powers of sale). and 726 (a form of action rule).
1 Send PDF reports to AntideficiencyActRep@gao.gov. The GAO acknowledges receipt by email. Homeowners must take the time to carefully weigh the value of the protection offered by this law before taking any action that could lose their protection forever. One of our clients moved from her sister semi-detached home to another state, and when reversals in her business prompted her to investigate her asset/liability situation, she found to her surprise that the anti-shortage law no longer protected her in her old home, precisely because it was no longer her apartment. At first, she thought her risk was just the equity in the property. She found that the entire note, hundreds of thousands more than equity, was now a debt she had to face. When she left the state, it never occurred to her to consider the long-term effects of ending the property`s « residential status. » A little foresight. or a visit to their accountant and lawyer to discuss risks.
He would have spared him much torment. This strong protection for the landlord (and for some others, as described below) means that if you breach the deposit and are sued, or if the property securing the deposit is subject to seizure, the money you have to pay for the ticket secured by your apartment is limited to the actual equity in your apartment and the financial institution is simply out of luck. if this forced sale does not bear fruit. the full amount due on the bond. For example, if you still owe five hundred thousand dollars on the note secured by your house, and because of your non-payment, the bank locks, but because of the drop in house prices, the house is only sold by the bank`s trustee for four hundred thousand, the bank does not have the right to sue you for the remaining hundred thousand due under the note. This is called the Anti-Deficiency Act because the loss of profits between the proceeds of foreclosure and the amount of the bond cannot be offset by a separate lawsuit against the surety. Even if a state has anti-disability laws, they are not always applicable in all situations. For example, anti-default laws generally do not apply if: In addition, California generally provides that guarantors may waive any default defense to which they are entitled, whether legal or otherwise. 8 As a result, most lenders regularly include significant waivers of remedies in their standard collateral.
Not only do lenders regularly sue guarantors for default judgments – which they can`t do against the customer – but they often reap a stroke of luck by being the sole bidder in a foreclosure sale at a significantly reduced price. Thus, the most critical moment for the debtor usually occurs within weeks of the declaration of default of the promissory note, and the creditor suggests various ways to delay or stop enforcement if the debtor simply agrees to pay additional amounts and/or waives the protection of the anti-deficiency law. Too often, in the hope of correcting the situation, the debtor signs documents that end up giving up vital protections without fully understanding how dangerous it can be. The Antideficiency Act (ADA) (Pub.L. 97–258, 96 Stat. 923) is a law enacted by the United States Congress to prevent commitments being made or expenditures (expenditures) from being incurred beyond available funds or means. The law was originally enacted in 1884, with major changes in 1950 (64 stat. 765) and 1982 (96 stat.
923). It is now codified primarily in 31 U.S.C. §§ 1341-1342. The law is also known as Article 3679 of the revised statutes, as amended. If you have general questions about the law, please email AntideficiencyActRep@gao.gov. In Iowa, default protection is limited to cases where the lender elects the foreclosure and the borrower does not request that the foreclosure be delayed. The courts recognize false collateral in a variety of loan security contexts. We will review decisions that apply to different types of respondents in the next email. In a typical foreclosure, when the buyer fails to make the mortgage payment, the property is seized and the lender obtains the property through legal proceedings.
The property is then usually sold to pay the mortgage, and there is usually a discrepancy between the sale price and the outstanding balance of the mortgage. Many states that allow default suits base default on the fair market value of the home, not the sale price. So if a house was sold for $300,000 in foreclosure, but was valued at $400,000 and the borrower still owes $500,000, he can only be sued for $100,000. The heads of agencies and the mayor of the District of Columbia must provide the Comptroller General of the United States with a copy of the Antideficiency Act reports when they are submitted to the President and Congress. Read your state`s laws to learn more about whether you are foreclosure and anti-disability rights. The California Supreme Court noted that these statutory provisions « indicate a deliberate approach by the legislature to strictly limit the right to recover judgments of default, that is, to recover the debt more than the value of the guarantee. » 5 Once legislation to remedy default has been adopted for public reasons, a principal debtor cannot be compelled to waive its protection by direct agreement.