Legal Question in Real Estate Law in California

See a bankruptcy lawyer to rewrite, or get out from under, the 2nd.

Without knowing the current balances on the first and second and the value of the house, it is not possible to answer your question with any reliability.

It does make a difference in the possible outcomes whether a foreclosure sale would leave a deficiency or not. For most properties purchased in 2006 and having a cash-out second, I think it's fair to assume the property is "under water" or "upside down," to use two common expressions. I'll answer based on that assumption.

First, the "one action rule" does not apply to trustee sales, because they are not "actions" in that they do not involve a court proceeding.

A nonjudicial foreclosure (trustee sale) cannot result in a deficiency judgment by the foreclosing lender, whether the obligation foreclosed is a first or junior lien.

If the second forecloses, whoever buys the property at its foreclosure sale will take the property subject to the lien of the first. For this reason, second trust deed holders are usually less than eager to be the one to initiate foreclosure, but it does happen, especially with properties with some equity, but prompting a second trust deed holder to foreclose on an under water property can be difficult. Also, the second lender knows that if the first forecloses and the second isn't paid off in full, they become a "sold-out junior," and having lost their collateral through no fault of their own, are free to pursue the borrower on their now-unsecured note without regard to the antideficiency laws.

I agree with Mr. Whipple's analysis. I would add that under his analysis, if the first forecloses, the second can sue, and appears not to be barred by the anti-deficiency prohibition of Code of Civil Procedure section 580b either, because the second does not appear to be a "purchase money mortgage." This means Mr. Stone's response has some validity.

I have no idea why Mr. McCormick wants to know how much you owe on either note. Maybe he will volunteer and pay off the second for you.