Legal Question in Real Estate Law in California

You mean if the bank forecloses on one? It depends on other facts. If the bank forecloses nonjudicially by way of a trustee's sale, they are precluded from obtaining a deficiency judgment pursuant to Code of Civil Procedure section 580d.

If the bank forecloses judicially, they are not prohibited by section 580d, but they may be prohibited from obtaining a deficiency judgment pursuant to the purchase money protection of Code of Civil Procedure section 580b.

It is not clear from your post whether or not the foreclosing loan would be considered a "purchase money mortgage."

Mr. Roach is correct. I would just add that the purchase money mortgage protection never applies to investment property or second homes, only your personal residence.

Actually, Mr. McCormick is wrong. The purchase money mortgage protection of Code of Civil Procedure section 580b could apply to more than one house, and even commercial property. If the house or commercial property was seller financed, with what we commonly call an owner carry back, section 580b applies. Additionally, if a borrower purchased one house to live in, and then later moved and purchased a second house to live in, and both were purchased with purchase money mortgages, the protections of 580b would apply to both.

An attorney would need to carefully review the facts. There is case law that states that it is malpractice for an attorney to tell a client that 580b is inapplicable, or to fail to raise it as a defense.

The foreclosing lender might look at it this way, if they are smart, and there is evidence that a few of them are: "This guy, our defaulting borrower, has another property. It has a market value of $300,000 and a $275,000 lien on it, which would be senior to our judgment lien if we went for a court foreclosure and deficiency judgment. Therefore, we might be able to grab his $25,000 of equity if we went to court to foreclose instead of doing a trustee sale. But it would take years to get clear title, free of the borrower's right of redemption, and perhaps $25,000 in legal fees. It's a no brainer -- we'll forgo the deficiency and foreclose out of court by trustee sale."

Of course, if you are a rich guy and they know it, or if you have made them angry by not taking care of the collateral, or by fibbing on your loan application, the lender may be more aggressive.