Facts: A buyer employed a mortgage broker to obtain funds to purchase a single family residence to occupy as their home. The buyer dictated income information to the broker who completed the buyer’s mortgage application. The application, which contained incorrect income information, was submitted to a lender for funding by the broker. Based on the incorrect information, the lender funded two mortgages secured by a first and second trust deed totaling less than $150,000 on the property. The buyer defaulted on the first mortgage and the lender filed a notice of default (NOD) and foreclosed. The property was sold and the unsecured second mortgage was purchased by a creditor who discovered the incorrect income information on the buyer’s second mortgage.
Claim: The creditor sought to recover the amount of the second mortgage balance from the buyer, claiming the buyer was not protected by anti-deficiency legislation since the second mortgage was acquired by fraud as the buyer misrepresented their income.
Counter claim: The buyer claimed the second mortgage was still protected by anti-deficiency legislation and exempt from the fraud claim since the funds were used to purchase an owner-occupied property and totaled less than $150,000.
Holding: A California bankruptcy court held the buyer was not liable for the balance of the second mortgage since the creditor’s exception to anti-deficiency statutes in the instance of fraud does not apply to single family, owner-occupied residential real estate where the mortgage does not exceed $150,000. [In re Montano (February 25 2013) _BR_]
Editor’s note – See the Uniform Residential Loan Application (FNMA 1003). [See first tuesday Form 202]