Legal Question in Real Estate Law in California

Re: consequences of foreclosure

Generally not. Here are the rules, as I recall them (I'm out of the office today and can't research the question):

If a foreclosure results in a deficiency - the net proceeds of the foreclosure sale being less than the costs of sale and the balance due the foreclosing lender - the lender may NOT obtain a deficiency judgment if:

(1) The foreclosure was done through a trustee's sale under a power of sale in a deed of trust (this is common in California), or

(2) The obligation being foreclosed was a purchase-money loan, whether the foreclosure is judicial (in court) or by trustee's sale.

There is also some case law holding that a refinancing loan which refinanced a purchase money loan is equally exempt from default judgment.

Therefore, about the only loan that can result in a deficiency judgment upon foreclosure would be a loan used to take out additional equity after the original purchase AND was foreclosed by a court proceeding rather than by a trustee acting under a deed of trust.

Note that a lender can sometimes sue a borrower for damages in tort for "waste" on a property being foreclosed, e.g., if the borrower logged off valuable timber in June after buying the property in May and defaulting in July. The tort of waste is considered separate from any breach of the loan contract.

This answer assumes the property is in California.

Re: consequences of foreclosure

California is a non-recourse state. That means that if a lender on a purchase money deed of trust forecloses on your residence, you are not liable for any deficiency. If you refinanced, and the lender is foreclosing on that loan, you may, under certain circumstances, be liable for a deficiency.

Re: consequences of foreclosure

It depends upon a number of factors. If it is a "purchase money" loan (i.e., it was made at the time you purchased the home and is NOT a refinance loan), then all they can do is foreclose and the loan is extinguished. If, on the other hand, it is not a purchase money loan,then the lender can elect to either foreclose by trustee's sale, in which case, once again, it extinguishes the loan, OR, he can elect to foreclose judicially, by way of a lawsuit, and then can seek a deficiency judgment holding you liable for the difference between what the property sold for at a court-ordered foreclosure sale and what is owed on the loan. Please also note, if the lender is able to prove some sort of fraud respecting the making of the loan (such as the borrower lied about his income, etc.) they can also seek a deficiency judgment. Take your paperwork to a real estate attorney for an assessment.