When we purchased our home in CA. we took a 1st & 2nd which was a HELOC. Both loan agreements/contracts were signed at the same time. The HELOC was later refinanced and an addt'l $20-30k was taken out for home improvements. Foreclosure on the property is inevitable - short sale has been in process for a year but lender not cooperating. A collection agency servincing the HELOC has now been calling trying to set up a payment plan or they state they can garnish wages, place liens and/or sieze savings accts. Both the 1st and 2nd (HELOC) mortgages were originally held by Citimortgage. Citimortgage has since sold the 1st but still owns the HELOC and has a collection agency currently servicing the loan. Are we liable for the HELOC if it was taken out at the time of purchase? Can wages be garnished? Can they seize our savings accounts? Thank you in advance for any guidance you can provide.
Answer
Wages can be garnished and bank accounts levied if they get a judgment.
When you refinanced the property, you destroyed any purchase money anti-deficiency protection that you had, if any, under Code of Civil Procedure section 580b. (Union Bank v. Wendland (1st Dist. 1976) 54 Cal.App.3d 393, 400.)
If the holder of the first forecloses against you nonjudicially, through what is known as a trustees sale, the holder of the first is prohibited from obtaining a deficiency judgment against you, by application of Code of Civil Procedure section 580d. The holder of the second, however, becomes what is called a "frozen out junior lienor" and can sue you directly on the note. The frozen out junior lienor rule would not apply if both the first and second were the same lender, but it appears from your post that the first has been sold to someone else.
If the Citimortgage pursues the matter now, and the property has not been foreclosed, you can raise the security first provisions of Code of Civil Procedure section 726, but that would not prevent a deficiency judgment against you, in the long run.
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