When you’re acquiring a loan for purchasing a house, most people end up with a deed of trust, which is a security instrument for the person who’s lending you the money. And most people have learned over the years that if I buy a house and have a deed of trust on it, if you default on it, the lender can take that house back, But they aren’t entitled to a default judgment if they sell it and it doesn’t recover as much money as their owed.
However, there’s been some changes in the law that you have to be aware of. Many people will take out an improvement loan. And they think that because it’s secured by a deed of trust and maybe a second deed trust that that improvement loan is no longer going to be a problem for them if they have to default because the lender cannot get a default judgment for the balance of the loan. That is just not the law. You have to realize that your loan has factors to it that have to be taken into account.
For instance, is the loan money going to be used solely to redo something in the house? Are you going to totally demolish part of the house? Is it a construction loan where you’re adding to the house? Or, are you just buying some appliances, adding some countertops or something of that nature? Before you go down that road, you should have someone look over the terms of that loan. Not that everybody’s going to default. And in fact, no one ever takes out a loan thinking they will default, but unfortunately, things change.
We’ve seen it with the COVID and people losing their jobs. We saw it back in 2008 with the bubble bust of real estate. When you get to a point of wanting to take out a loan on a home, you should have somebody review it. The terms and conditions within the law may determine if it’s dischargeable and they can’t get a default judgment, or you are stuck still paying it, even though you lost the house.
Herman “Gib” Zickerman, attorney and partner at Tucson law firm, West, Longenbaugh and Zickerman, PLLC, specializes in personal injury cases, real estate law and business matters. Give us a call at our office and we’d be more than happy to help you. It’s (520) 790-7337.