Legal Question in Real Estate Law in California

Thanks so much Bryan, we refinanced our first mortgage in Dec of 2004 and have a Note & Deed of Trust with our real property as collateral. We do not have any other liens on the property. Is that what you mean below in your answer by a "purchase-money first deed of trust"? Does that mean that the lender now (whoever that may be, no one will give us that info) cannot take our money in our savings even if we are in default? We do not have any other debt other than our first mortgage.

YOUR ANSWER:

With limited exceptions, a bank that has lent money on a residential loan (promissory note secured by deed of trust) has recourse only to the collateral (the residence described in the deed of trust). Further, the usual foreclosure process is by trustee's sale, which precludes going for a so-called "deficiency judgment" for any shortfall between the amount due the bank and the selling price at foreclosure. The main concerns where the lender, or a lender if there are junior loans, has done a refinancing.

Your inheritance should not be at risk unless you have a non-purchase money second deed of trust, or the lender has other reasons to single you out for court action (such as doing damage to the collateral, loan-application fraud, etc.).

For a more complete answer, you might re-ask your question with particulars, such as whether you have only a purchase-money first deed of trust, or have refinanced and/or taken out a second mortgage.

Bryan Whipple

Bryan R. R. Whipple, Attorney at Law

P O Box 318

Tomales, CA 94971-0318


Asked on 11/27/10, 12:32 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

I'd say it is very unlikely that the holder of your refinanced (i.e., no longer purchase-money) first deed of trust will attempt to foreclose judicially and therefore qualify to seek a deficiency judgment. There is even some recent case law holding that refinancing with the same lender, to get a better rate and with no cash out, doesn't destroy the purchase-money character of your loan, in which case the lender could not go for a deficiency even if it wanted to. In either case, you seem pretty safe and I would not lose any sleep over the tiny risk to the inheritance.

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Answered on 12/03/10, 10:25 pm


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