Pub. 8 2018 Issue 1

21 ISSUE 1. 2018 been completed by the governmental body that issued the building permit for the struc - ture; or (ii) if no final inspection is required by the government body, then the dwelling has been completed in all material respects prescribed by the applicable governmental ordinances or regulations. STEP THREE Consider whether contractual anti-de- ficiency protection or fair market value waivers included in the loan documents are enforceable. • A borrower cannot prospectively waive anti-deficiency statute protections. • A guarantor can prospectively waive anti-deficiency statute protections. • Borrowers and guarantors cannot prospectively waive the fair market value credit required by the deficiency statutes and fully discussed below. • A borrower can waive the right to a fair market value credit determination after a non-judicial trustee’s foreclosure sale commences. Although there is no case on point, the same rule likely applies to guarantors as well. STEP FOUR Determine which of the four general rules listed below apply to the mortgage loan to be sued upon by the mortgage lender. Rule #1: Purchase Money Loan + Secured by a Qualified Property • Trustee’s Sale: NO DEFICIEN- CY JUDGMENT IS ALLOWED AGAINST THE BORROWER. Note that only deeds of trust may be fore - closed through a trustee’s sale. • Judicial Foreclosure: NO DEFICIEN- CY JUDGMENT IS ALLOWED AGAINST THE BORROWER. • Short Sale: NO DEFICIENCY JUDG- MENT IS ALLOWED AGAINST THE BORROWER. The mortgage lender cannot elect the remedy to voluntarily release/waive the mortgage lien on the real property collateral and sue the bor - rower directly on the unsecured note. • Unless prospectively waived in the loan documents, a mortgage lender should presumptively assume that any guaran - tor of the mortgage loan will receive the same anti-deficiency protection against a deficiency judgment as the borrower. • An example of when Rule #1 applies is if a mortgage lender has made a loan that the borrower used to purchase a single-family home or duplex located on 2.5 acres or less. Rule #2: Purchase Money Loan + Secured by a Non-Qualified Property • Trustee’s Sale: DEFICIENCY JUDG- MENT IS ALLOWED AGAINST THE BORROWER. A mortgage deficiency lawsuit must be filed within 90 calendar days after the date of the trustee’s sale. The 90-day statutory deadline after the date of the Trustee’s Sale is an absolute bar against filing a mortgage deficiency lawsuit after that date. • Judicial Foreclosure: DEFICIEN- CY JUDGMENT IS ALLOWED AGAINST THE BORROWER. • Short Sale: DEFICIENCY JUDG- MENT IS ALLOWED AGAINST THE BORROWER. • Mortgage lender can obtain a deficien- cy judgment against a guarantor of the loan based upon the independent guaranty contract. • An example of when Rule #2 applies is if a mortgage lender has made a loan to a borrower used to purchase real property used for any non-residential purpose (such as an office building, restaurant or other business purpose). Rule #3: Non-Purchase Money Loan + Secured by a Qualified Property • Trustee’s Sale: NO DEFICIEN- CY JUDGMENT IS ALLOWED AGAINST THE BORROWER. • Judicial Foreclosure: DEFICIEN- CY JUDGMENT IS ALLOWED AGAINST THE BORROWER. • Short Sale: DEFICIENCY JUDG- MENT IS ALLOWED AGAINST THE BORROWER. • Unless prospectively waived in the loan documents, a mortgage lender should presumptively assume that any guaran - tor of the mortgage loan will receive the same anti-deficiency protection against a deficiency judgment as the borrower. • An example of when Rule #3 applies is if a mortgage lender has made a non-purchase money loan to a borrower and the real property securing the loan is located on 2.5 acres or less and is “utilized” as a single one-family or a single two-family dwelling. NOTE SPECIAL EXCEPTION: If a mort- gage lender holds a non-purchase money promissory note and junior deed of trust lien upon a Qualified Property and a senior lien holder completes a Trustee’s Sale of the property to extinguish the mortgage lender’s junior lien, then the mortgage lender can sue the borrower and/or guarantor upon the remaining unsecured promissory note and/ or guaranty for a deficiency. This exception applies even if the same mortgage lender holds both the senior promissory note and deed of trust lien foreclosed upon and the junior promissory note and/or guaranty and deed of trust lien extinguished by the senior lien Trustee’s Sale. In addition, the junior mortgage lender may apply for any excess foreclosure sale proceeds that result from the senior lien holder’s Trustee’s Sale, apply them against the junior loan balance and still sue the borrower for deficiency judg- ment. Furthermore, the 90-day limitations period does not apply to this type of suit, because it is technically a suit on the junior promissory note and not a deficiency lawsuit under the foreclosure statute. Rule #4: Non-Purchase Money Loan + Secured by a Non-Qualified Property • Trustee’s Sale: DEFICIENCY JUDG- MENT IS ALLOWED AGAINST THE BORROWER. • Judicial Foreclosure: DEFICIEN- CY JUDGMENT IS ALLOWED AGAINST THE BORROWER. • Short Sale: DEFICIENCY JUDG- MENT IS ALLOWED AGAINST THE BORROWER. • Mortgage lender can obtain a deficien- cy judgment against a guarantor of the loan based upon the independent guaranty contract. • An example of when Rule #4 applies is if a mortgage lender has made a non-purchase money loan to a borrower