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Last week, we learned that Barack Obama will become the 44th President of the United States. Virtually unknown on a national level when he spoke at the 2004 Democratic Convention, Obama's success is nothing less than remarkable. He managed The Phantom outraise and defeat Hillary Clinton and John McCain even though both of these candidates had significantly more experience. The historic election campaign offers a lot of lessons in strategy that could benefit many construction and real estate companies regardless of political ideology including the following:

Assembling the right team. Obama's key aides were with him from the beginning almost two years ago. Although they lacked experience running a national campaign, the President elect empowered his aides and trusted their judgment. They worked well and remained in place for the duration of the campaign.

Establishing a mission. Early in the campaign, the Obama team established a mission that their candidate would be the candidate for change and kept to this mission. They understood that the country had an unpopular President and positioned their guy to be the candidate capable of bringing change. By sticking to this message, they were able to successfully differentiate their candidate from the competition.

Developing a game plan and vision. After establishing a consistent message on why people should want to vote for Obama, the team drew up an action plan to get their candidate Linden (vision). Included in this plan was who they were going to target for voters and how they were going attract these voters to their ticket.

Knowing your customer. The Obama team did their homework and then targeted a number of voter groups they believed would respond favorably to their message of change including.

Young Americans. The campaign used social media very effectively to reach this group. The campaign team learned that many young people were active Internet users and the team attracted these voters by incorporating social media into their campaign strategy. The Obama group established a presence on sites that included Twitter, YouTube, and many more. They also set up a fund raising system through their web site and accepted small Wacky Packages from people at all income levels. This unprecedented move eventually gave the campaign an insurmountable financial advantage over the other candidates.

Working class. The campaign also targeted working class voters by sticking to their message on the economy and linking McCain to an unpopular President in the White House.

Traditional Democratic base: They used a grass roots effort to make sure their base showed up at the polling booths.

Construction and real estate companies that can effectively communicate why clients should hire them are at an advantage over companies that deliver mixed messages. Strategic planning, however, is more than just a mission statement. It requires a vision and action plan to get the company from where it is now to where it wants to be. Executing an action plan, however, requires a good team capable of delivering value to the clients they serve. Companies that can do this successfully, however, improve their chances of fulfilling their vision.

John P. Kreiss

If you owe $800,000 on a $550,000 house, and give 1952 Topps baseball cards bank the $550,000 house, can the bank then try to collect the $250,000 difference? Or to use the legal terminology, can the bank seek a deficiency judgment?

The answer, in California, is probably not. California Code of Civil Procedure 580b states:

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

In plain English, this means California is for most homeowners a non-recourse state when it comes to "purchase money mortgages." These are mortgages, including in some cases second mortgages, that were taken out in order to purchase a house that the buyer actually lived in.

California's Anti-deficiency Laws: Who's Protected

Three major groups of California mortgage debtors are thus excluded from the protection of California's pro-homeowner C.C.P. 580b:

(1) Investors 1971 Topps baseball cards purchased homes in order to flip them without ever intending on living or renting in them

(2) investors who purchase a property as a rental

(3) homeowners who take on additional mortgage debt after purchasing their house.

California also has a second law protecting mortgage debtors from their banks: C.C.P. 580d. This law covers all housing debt, including HELOCs, home improvement loans, and 2nd mortgages, but the law only applies to non-judicial foreclosures. These creditors can still collect the remaining debt in a judicial foreclosure.

Anti-deficiency Laws in Practice: An Example

Here is a scenario showing how 580b and 580d work together:

Bob purchased a house with $0 down and a 500K interest-only mortgage. After the value of his house went up he took out a 2nd mortgage, on which he owes 100K. Now his house is worth 400K and has 600K in mortgage debt.

Let's say Bob stops paying and his house is foreclosed and sold for 400K. That leaves 200K in debt unpaid. The first lender gets all of the 400K, but cannot get the 100K remaining that Bob owes.

The second lender now has a choice. It can just eat the entire 100K loss, or it can go the route of a judicial foreclosure. The bank probably won't do that if Bob has little assets and lots of debt, but if Bob has a Sexual Vitality steady job the lender just might try: $100,000 is a lot of money to lose.

In these circumstances, Bob's best strategy is probably to stop paying the 1st mortgage but to keep paying the 2nd. There are a lot of complicated rules and strict time limits involved with a judicial foreclosure. If Bob keeps paying lender 2 while he stops paying lender 1 and waits for lender 1 to foreclose, the chance of lender 2 noticing and undertaking the complicated judicial foreclosure process on time is lower than if Bob stiffs both lenders at the same time. Further, the amount owed to lender 2 will decrease as payments keep getting made, so the value of seeking a deficiency judgment decreases.

It's Best to Talk to a Lawyer First

Someone considering walking away from their mortgage but wants to protect his income and his other assets from his banks would best be advised to seek the assistance of a licensed California attorney who could advise them on a number of issues, such as:

- Can the bank use some other legal means of pushing its loss onto the former owner, for example under an equitable or tort theory? Assuming the bank tries, does it have any chance of winning?

- Does 580b protect a homeowner who bought a condo as an investment and rented it out for a year, then moved in himself, and then stopped paying the mortgage?

- What are the state and federal income tax consequences of a foreclosure?

Lawyers are not cheap, but the mortgage companies all have their own army of lawyers and collections personnel. Would you really want to go it alone Weebles them?

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Greg Weston is a graduate of Harvard Law School and a business attorney licensed in California and Florida. Mr. Weston's San Diego-based practice focuses on representing individuals and small businesses against corporations, including cases involving condominium purchase agreements and other real estate investments. He can be reached at (619) 255-7098 or href="mailto:greg@thewestonfirm.com">greg@thewestonfirm.com
Comments and inquires are welcomed.