Legal Question in Real Estate Law in California

Most foreclosures don't result in any claim being made against the borrower's other assets and income. Indeed, often the lender has no recourse other than to the property securing the loan. Even when the lender could sue for a deficiency upon foreclosure, they often don't. Among other things, a foreclosure where a deficiency will be sought must be brought in court, rather than being done by a quick and cheap trustee's sale.

There are, however, occasional situations where the borrower has an elevated risk of lender action to collect additional money. One of these is if you have both a first and second loan, and the first is foreclosed. The second loan becomes unsecured, and since the lender is deemed to have lost its collateral through no fault of its own, it is allowed to sue the borrower directly, as an ordinary unsecured creditor. Based on your facts (the recent loan, the huge deficiency in equity), you may be in this category.

Other factors increasing a borrower's risk of a suit for a deficiency or on some other grounds by a lender include (1) being known as a rich guy with deep pockets and well able to pay a judgment, if obtained; (2) being suspected of mortgage-application fraud; (3) when the lender is a private individual or small fund, rather than a large financial institution; (4) where the borrower has failed to take care of the property, e.g., has failed to pay the taxes, carry fire insurance, not made necessary repairs, etc.; (5) where the property was not owner-occupied at the time the loan was applied for and made; and (6) where the loan is a refinancing rather than purchase-money.

If the loan is a purchase-money first for a property to be owner occupied and there are no "irregularities" in the application or the care of the property, you are just about 100% safe from any personal demands. Even with one or two of the negative elements present, you still have a relatively low risk of being sued. The main impact of a foreclosure will be on your credit rating and, of course, whoever is living in the property.

You have some additional rather positive factors in that you have a place to stay, you could cut off most lawsuits by filing bankruptcy if necessary, and you probably wouldn't lose your pension or Social Security income to either a lawsuit judgment or a bankruptcy (but I am not an expert in those areas).

If you have several of the risk factors described, you should see a California lawyer for a more detailed and personalized risk analysis.