Legal Question in Real Estate Law in California

Re: Is A bank less likey to take you to court if they waive arbitration rights?

Their waiver of arbitration rights, as was answered in the previous post, likely does not mean that you have waived the right to request arbitration. Further, in California most lawsuits, even in the bankruptcy context, get sent out for mediation before trial anyway. I don't believe that their waiver will affect their pursuing you for the unpaid balance. Remember that in your loan documents, you signed an attorneys fee provision which provides that if they take you to court and win, they will actually get not just what they are owed, but a judgment including their attorneys fees and costs. Whether those fees and costs are higher because it had to go to court instead of binding arbitration isn't going to factor much into their decision. Its hard to say with any accuracy what they will do, but I would bank on the fact that they will not be very willing to settle this solely because of the waiver of arbitration.

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Re: Is A bank less likey to take you to court if they waive arbitration rights?

First, the term "recourse" is somewhat ambiguous when applied to loans secured by deeds of trust on residential real property. In general, the lender must forst resort to the collateral, i.e., must foreclose, and if there is a deficiency, the lender may have recourse to the borrower in certain limited situations. There may be situations where the lender can pursue the borrower directly, and these would include cases where the collateral has been lost, as by prior foreclosure by the holder of the first DofT.

There are two main ways to foreclose: by trustee sale under the power of sale in a deed of trust, and so-called judicial foreclosure, where the borrower is taken to court. At least one researcher has suggested that there might be a third way: foreclosure by arbitration.

I have never heard of a foreclosure being accomplished by sending the lender and the borrower before an arbitrator under a contractual arbitration clause. (I'm not sure this would even be permissible under California statutes.)

The usual purpose of putting an arbitration clause into a loan contract is not to force a foreclosure into arbitration (instead of court); its purpose is to keep the borrower from making counterclaims against the lender in court (for predatory lending practices, fraud, etc.).

Generally, going to court is thought to be more expensive than arbitrating. It may not always be so.

The buyer at a foreclosure sale on the 2nd takes title "subject to" the first, which can be an economic factor.

Overall, I don't think the waiver of arbitration is a significant factor here. The lender's decision may be based primarily on whether it thinks you have other assets, a high salary, etc. that can be tapped to satisfy a judgment. To find that out, they'll look at your loan application to see what you claimed in the way of income and net worth when you applied for the loan. If you said you were a fat cat but aren't, the suit may include a claim for loan-application fraud.