Legal Question in Real Estate Law in California

Well there are extensive financial and credit consequences that are beyond the scope of a legal information website. The possible legal consequences are as follows:

1. It sounds like the only mortgage on the property is the one you took out when you bought the house, and you have not refinanced that. If that is correct then the lender's legal options are almost non-existent. There is a law in California that says that if you loan money for a person to buy a property that they then live in, and you take a mortgage as security, all you can ever do (unless there was fraud or something) is foreclose on the mortgage. If the foreclosure sale does not bring enough to pay off the debt, the lender is out of luck.

2. Even if you refinanced, or did not live in the property, or for some other reason do not qualify for the "purchase money" anti-deficiency law, if the lender does a traditional foreclosure without going to court, just following the notice of default and foreclosure auction process, they still cannot go after the borrower for an unpaid amount after the sale. This is called the "one form of action rule." If they choose the quick, easy sale of the property, they can't then bring an action in court for the shortage.

3. If you don't qualify for the purchase money anti-deficiency rule, and the lender doesn't want to walk away from the difference between what the property is worth and what is owed, they do have the right to file for "judicial foreclosure." Most lenders do not do this, but sometimes if the loss is great and the borrower has other assets, they will. In that case they file a traditional law suit to collect the debt, and add a claim asking the court to sell the property, and then enter a judgment for the deficiency.

Lastly, if the lender does have the right to judically foreclose and get a deficency judgment, they might or might not be able to go after your wife's house. That will depend on whether your wife is on the loan and if not, whether there is any community property interest in the house in her name. If she is on the loan, it doesn't matter whose name the other house is in. If she is not, then figuring out whether there is a community property interest in the other house gets too complicated to give you an answer here.