Legal Question in Civil Litigation in California

No, not likely, because CA is not a recourse state. Your credit will be hurt, you will not be able to refi any other property. This second property, as long as you make the contractual payments, you 3 should be ok.

If the first property loan was a purchase money loan [all money used to buy the property], then the lender can only take the property, but if you refinanced the property or had a home equity loan, then the lender could go for a judgment for the balance of the loan beyond its fair market value at the time of the sale and impose that judgment as a lien against your portion of the second investment property. You need to see an attorney who specializes in this type of problem.

Mr. Tuann is WRONG. California is not a no-recourse state. California has certain limitations on recourse but it is definitely NOT a no-recourse state. The two main limitations on recourse are the purchase money rule of Civil Code section 580d, and the "one form of action rule." Section 580d only applies to principal residences, and only to loans that were used 100% for the purchase that have never been refinanced. The one form of action rule requires lenders to choose between a slow, expensive foreclosure lawsuit that results in a foreclosure sale that can be undone on a number of technical grounds, or a relatively quick notice of default, notice of trustee's sale, and trustee's sale on the courthouse steps that is almost impossible to undo once the proverbial gavel falls. If they go the lawsuit route they can request a judgement for any short-fall. If they elect the trustee's sale, they have chosen their "one form of action" and cannot thereafter sue for the shortage. Probably 98% of private money lenders and 99.99 percent of commercial lenders, use the trustee's sale option.

The reason all this is relevant to your question is that if there is no right to a deficiency, they cannot do anything regarding any other assets you own. So unless they file a foreclosure lawsuit instead of going the notice of default and trustee's sale route, there is nothing more to worry about. If they do sue and obtain a judgment, it would still be nearly impossible for them to foreclose on the other property, since they could only sell your share. Your son's would stay free and clear. What would happen instead IF they even went to all the trouble of getting a judgment, is they would record an abstract of judgment that would require paying them off whenever the property was sold. Again, your son's share of the property would not be affected.

AND,

'letting' a home go into foreclosure is almost never the right answer. There are other (sometimes thought to be, better) options - deed in lieu, short sale, cash for keys, BANKRUPTCY. In each of these options you can address the deficiency issue ahead of time - the 'short fall.' For example, if they go the lawsuit route and you owe $200,000 now - if the house only sells for $100,000 - they could still pursue you for the remaining amount owed - $100,000.

Bankruptcy - either a 7 or 13 may give you better options and get rid of any excess. Your credit will be similarly effect by the foreclosure as by the bankruptcy - except the bankruptcy will allow you to get rid of other debt (e.g. credit cards, medical bills, perhaps old tax debt, etc.)

If not - you can at least negotiate with the bank - the way we do in the cash for keys program. Sometimes a bank will pay you $1,000- $5,000 to move out and leave the place in move-in condition by a certain date.

Maybe you should consider consulting with a foreclosure defense and/or bankruptcy attorney (of which, I am both).

Actually, Mr. McCormick is closer the the truth, but his citations are a little off.

California has a very confusing body of law on the subject. Deeds of trust will sometimes state that they are nonrecourse, which means that only the property that forms the security can be looked to to satisfy the debt. But those are rare in practice. What other states refer to as recourse/ nonrecourse, is actually determined by reference to California's statutory law prohibiting deficiency judgments. A deficiency judgment is a judgment against a debtor for the difference between what the property sold for at the foreclosure sale and the balance of the underlying debt.

Code of Civil Procedure section 580d prohibits a deficiency judgment after a nonjudicial foreclosure sale, meaning the exercise of the power of sale contained in the deed of trust. That section is triggered once the trustee's sale is held. Once having fully exercised the power of sale, by conducting a trustee's sale, the lender is prohibited from suing you for the balance on the on the promissory note. California has made exceptions for this rule, for lawsuits for fraud, waste, and rent skimming.

If a lender wants a deficiency judgment, which would affect other property of yours (unless you have also made that other property security for the underlying debt), the lender has to file an actual action to foreclose, meaning a lawsuit, in court. At that point, however, the purchase money anti-deficiency prohibition of Code of Civil Procedure section 580b come into play. (Note: purchase money anti-deficiency protection comes from 580b, not 580d.)

Determining whether the purchase money protection applies or does not apply is factually intensive, and is best left to a competent attorney. It does not just apply to residential loans purchased by the debtor and financed by third party institutional lenders. It also applies to installment land sale contracts, and ANY property in which the deed of trust was given to the seller for financing.

As I mentioned above, this area of the law is very complex, and I suggest you speak to an attorney competent in this area of the law before allowing your home to go into foreclosure.