Legal Question in Real Estate Law in California

Re: Contractor's liability

You would not be able to recover the loss on the sale of the property, but I would argue you could recover the cost to finish the contractor's work.

Consult with an attorney to find our for sure.

Re: Contractor's liability

First of all, if the contractor owned the house at the time of the rehab (which I assumed he did since he was able to give you a deed of trust), you would have a difficult time to go after the contractor's bond. Essentially, he was acting as an owner/builder at that time.

Whether you can go after the contractor for a deficiency under the note depends on how you foreclosed. If you foreclosed using the power of sale under the deed of trust, you cannot go after the contractor for any deficiency under the note. This is the most common way to foreclose.

If you did a judicial foreclosure, which is rare, you can get a deficiency judgment against the contractor. Of course, then you have the problem of enforcing the judgment...

Re: Contractor's liability

I think the rule for attacking a contractor's bond requires (A) that the contractor (1) have breached a contract (2) for the performance of services requiring a license (3)with you. You meet (1) and (3) because of the default on the loan, but borrowing money on real property doesn't require a person to be licensed, so you don't meet criterion (2). Alternatively (B), that (1) the contractor defrauded you in (2) carrying out some activity requiring a license. Here, he was carrying out an activity requiring a license, but you have not given any facts suggesting fraud.

(I'm not 100% certain of the above limitations on liability of the surety, but this is the way I understand it in my recollection).

So, unless you can show fraud, the bonding company will probably reject your claim. However, it might still be worthwhile to contact them and ask.

Also, as to suit against the contractor, I agree with the previous answer that you probably aren't entitled to seek a deficiency judgment against the contractor, at least at this point, having already foreclosed, but you might have a viable suit for something else, such as waste (if his work damaged the collateral for your loan) or loan-application fraud, neither of which is directly linked to the foreclosure.

Re: Contractor's liability

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