A: The primary source of a mortgage lender’s recovery in the event the property owner defaults is the real estate held as collateral, not the owner personally.

To satisfy an unpaid mortgage debt, the lender is forced to first sell the secured property by completing one of two types of foreclosure sales to satisfy the amounts owed:

Occasionally, the fair market value (FMV) of the property is insufficient to satisfy the debt through bidding at the foreclosure sale. If the high bid is less than the debt owed on the mortgage, the lender suffers a loss, called a deficiency. However, to collect on a deficiency, the mortgage lender is very limited in California. The most common type of foreclosure action in California is nonjudicial. When a lender completes a nonjudicial foreclosure sale though a trustee’s sale, they are barred from recovering their loss on the mortgage, except for intentional waste to the secured property.

Further, California has established anti-deficiency laws which bar lenders from collecting losses due to any type of foreclosure sale on a non-recourse debt, also called purchase-money debt.

Nonrecourse debt includes:

Every other type of mortgage is a recourse debt. The homeowner with a recourse mortgage is personally responsible for the payment of the debt. Recourse debt includes:

When a recourse second mortgage is wiped out by the foreclosure sale of a first mortgage holder, the wiped-out lender may pursue a money judgement against the property owner to recover the debt.

The exception: mortgages insured by the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) are subject to government recovery of these unpaid mortgage debts and have recourse against the homeowner. However, the FHA and VA rarely pursue deficiency judgments, though they have legal authority to do so.

A: An owner of real estate used in their trade or business or held for investment is not taxed on the profit they realize from the sale of the property when they purchase like-kind replacement property in an Internal Revenue Code (IRC) §1031 reinvestment plan, also called a §1031 transaction or exchange.

Two classifications of real estate make up §1031 like kind property in reinvestment plans:
• investment property, also labeled as capital assets; and
• business-use property, which is property held for productive use in a trade or business.

§1031 investment property includes:
• residential and commercial (passive) rental real estate requiring active management;
• investment (portfolio) real estate not requiring active management; and
• vacation homes held for profit or resale.

Business-use property is real estate used to house an owner’s trade or business and includes hotel or motel operations.

However, before business-use property qualifies as like-kind property, it must be owned for at least one year before it is sold or exchanged. Business-use property is unlike investment property which has no holding period requirement before disposition.

After one year of ownership, the business-use property may be sold and replaced in a §1031 reinvestment plan by purchasing either business-use property or investment property. Similarly, investment property may be sold and replaced by either business-use property or investment property in a §1031 reinvestment plan.

Conversely, while a principal residence is a capital asset, it does not qualify as §1031 property since it is neither used in a business nor held for passive or portfolio investment purposes.

Further, properties transferred — exchanged ––between related persons in a §1031 transaction must be held by both persons for a minimum of two years after acquisition.

A: A homestead is the dollar amount of equity you have in your home that you qualify to exempt from creditor seizure.

The dollar amount of the homestead you hold in equity in your home has priority on title over most judgment liens and some government liens, but not your mortgages.

Two types of homestead protections are available to California homeowners:

• The declaration of homestead, which is recorded; and
• The automatic homestead, also called a statutory homestead exemption, which is not recorded.

Both homestead arrangements provide the same dollar amount of home equity protection in California. However, you need to record a declaration of homestead to receive all the benefits available under the homestead laws.

These benefits allow you the right to sell, receive the net sales proceeds up to the dollar amount of the homestead and reinvest the funds in another home.

As a homeowner, you qualify for one of three dollar amounts of net equity homestead protection:

• $75,000 equity as an individual homeowner with no dependents;
• $100,000 equity as a head of household; or
• $1750,000 equity if you are:
  • 65 years or older;
  • Disabled; or
  • Age 55 years or older with an annual income of no more than $25,000 or
  • A combined gross annual income of no more than $35,000 if married.

The homestead declaration needs to be signed, notarized, and recorded to take effect. Your recorded homestead does not affect your creditworthiness.
Any one of several individuals may sign and record the homestead declaration, including:

• You as the owner of the homestead;
• Your spouse; or
• The guardian, conservator, or a person otherwise authorized to act on your or your spouse’s behalf, such as an attorney-in-fact.

A: Sellers, through various forms and reports, disclose any conditions known to them which might negatively affect the value and desirability of the property for a prospective buyer.

Mandated property disclosures include:

• The Transfer Disclosure Statement (TDS): As the seller of a one-to-four unit residential property, you are required to furnish prospective buyers with a TDS setting forth the physical conditions and any other value-affecting facts regarding the property, its improvements and its surrounding area. The TDS is handed to prospective buyers as soon as practicable (ASAP) — when negotiations to purchase your property commence.
• The Natural Hazard Disclosure (NHD) Statement:The NHD statement is a mandated form prepared by a third-party NHD expert used by you and your agent to disclose public-ably available natural hazard information such as potential flooding, fire hazards and earthquake fault zones.
• The Lead-Based Paint (LBP) disclosure: The federal LBP disclosure form is required for all pre-1978 residential construction. LBP disclosure rules set forth the requirements for you to disclose any known LBP hazards and the buyer’s right to investigate them.

You may obtain additional reports to best disclose your property’s conditions to a prospective buyer. These reports, which your seller’s agent will advise you about, provide additional information to include in the TDS:

• The Home Inspection Report (HIR): A home inspectorconducts a physical examination of your property to determine the condition of its components and systems. On completion of their examination, they hand you an HIR on their observations and findings. In turn, you use the HIR to prepare your TDS, and then attach it to the TDS to avoid claims of misrepresentation against you and your agent.
• A Structural Pest Control (SPC) report: A report disclosing the existence of termites or structural damage due to a termite or fungal infestation.
• Whether you or the buyer will pay for corrective actions and repairs outlined in the SPC report is negotiated between you and the buyer in the purchase agreement.
• A neighborhood security disclosure: A form disclosing the known security conditions or criminal activity affecting the property and its surrounding area.

Further, your duty to disclose your knowledge about adverse conditions cannot be waived by your placing an “as-is” disclaimer in the purchase agreement.

Property cannot be sold “as is” without disclosure. Note: you and your agent are both liable for monetary losses in pricing or costs incurred by the buyer due to the failure to disclose defects you or your agent knew or should have known existed when you entered into the purchase agreement.

Digital signatures are like electronic “fingerprints.” In the form of a coded message, the digital signature securely associates a signer with a document in a recorded transaction. Digital signatures use a standard, accepted format, called Public Key Infrastructure (PKI), to provide the highest levels of security and universal acceptance. They are a specific signature technology implementation of electronic signature (eSignature).

What’s the difference between a digital signature and an electronic signature?

The broad category of electronic signatures (eSignatures) encompasses many types of electronic signatures. The category includes digital signatures, which are a specific technology implementation of electronic signatures. Both digital signatures and other eSignature solutions allow you to sign documents and authenticate the signer. However, there are differences in purpose, technical implementation, geographical use, and legal and cultural acceptance of digital signatures versus other types of eSignatures.

In particular, the use of digital signature technology for eSignatures varies significantly between countries that follow open, technology-neutral eSignature laws, including the United States, United Kingdom, Canada, and Australia, and those that follow tiered eSignature models that prefer locally defined standards that are based on digital signature technology, including many countries in the European Union, South America, and Asia. In addition, some industries also support specific standards that are based on digital signature technology.

How do digital signatures work?

Digital signatures, like handwritten signatures, are unique to each signer. Digital signature solution providers, such as DocuSign, follow a specific protocol, called PKI. PKI requires the provider to use a mathematical algorithm to generate two long numbers, called keys. One key is public, and one key is private.

When a signer electronically signs a document, the signature is created using the signer’s private key, which is always securely kept by the signer. The mathematical algorithm acts like a cipher, creating data matching the signed document, called a hash, and encrypting that data. The resulting encrypted data is the digital signature. The signature is also marked with the time that the document was signed. If the document changes after signing, the digital signature is invalidated.

As an example, Jane signs an agreement to sell a timeshare using her private key. The buyer receives the document. The buyer who receives the document also receives a copy of Jane’s public key. If the public key can’t decrypt the signature (via the cipher from which the keys were created), it means the signature isn’t Jane’s, or has been changed since it was signed. The signature is then considered invalid.

To protect the integrity of the signature, PKI requires that the keys be created, conducted, and saved in a secure manner, and often requires the services of a reliable Certificate Authority (CA). Digital signature providers, like DocuSign, meet PKI requirements for safe digital signing.