2026 Author’s Preface: The Engineering of a Defense
The “Zombie Loan” crisis of 2026 isn’t new it’s a ghost I’ve been fighting and leveraging since 2007. Back then, I legally engineered strategies to protect debt-trapped homeowners using CCP 580d and the One Action Rule.
Today, the banks are dusting off old Realtor Negotiated Shorts Sales and trying to collect on second mortgages that have been silent for over a decade.
They are counting on you (and your Realtor) not knowing the law. Non -Attorney Realtors aren’t licensed to advise on these high-stakes legalities.
Below is the exact analysis I published in 2012. Please note the laws have changed but there are still many areas which are not litigated and proven. Any Foreclosure or Short Sale Advisor making claims about how the law operates must be asked to put their claims in writing and have their Broker sign it. Then I will take a look at if for free (First 30 people).
San Diego short sales – helocs- purchase money loans- recourse or non recourse, california foreclosure law
One of the early threads on this blog dealt with the question of whether a Heloc used to fund the purchase of a home could ever be deemed to be a purchase money loan under California law.
The basic legal logic is that — heck, if the money goes into the purchase price of the the home and the transaction qualifies under 580 b – it must be purchase money.
Interestingly, many are of the opinion a heloc can never be purchase money.
There seems to be a dearth of court cases addressing this subject.
So I wonder how the heck can a lawyer (not to mention someone not licensed to address this issue like a a non lawyer short sale advisor-specialist-mitigation expert) can properly advise someone as to their pre-foreclosure solutions.
One – will the lender be able to seek a deficiency
Two – will the borrower get a 1099
Three – will the borrower have to self report income
If a lawyer can not comfortably advise a homeowner on this issue – how can anyone advise a homeowner to do a short sale? (the same logic applies for all purchase money loans). My firm is now pushing the lenders for answers and we will be litigating soon if we do not get them from each lender in writing. This is too prevalent a situation to be left up in the air for litigation after the sale or disposition is completed.
Every day I deal with the lenders, I become more convinced their loss mitigation departments are not being properly advised as to CA law. I believe you could characterize this whole process as bad faith negotiations. or, they are very well advised and they are purposely attempting to screw homeowners by allowing Realtors to negotiate short sales for people with should not not be doing short sales.
question –
If you negotiate a short sale for someone with purchase money loans – will the bank send out a 1099 to your seller?
Now if the security goes back as full payment should the bank even issue a 1099? Shouldn’t this be written into the transaction?
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