Legal Question in Real Estate Law in California

Re: Deed in lieu 0of foreclosure

The deed in lieu to the 2nd lienholder has no effect on the lien of the 1st, and in fact giving the deed probably is an event of default placing your 1st in a defaulted status even if your payments are current. The holder of the 1st will probably foreclose also, although in these poor market times there is a tendency to delay that, or negotiate a restructuring if possible, with the borrower (and/or in a case like this, the new owner).

California has a "collateral first" law and an assortment of antideficiency laws that tend to make a lender go after the collateral and leave the borrower alone. The protection is less likely to be available or to provide complete protection when any of the following are true: (1) the loan was not for purchase money, e.g. was a refi; (2) the defaulting party has deep pockets or other assets worth going after; (3) a borrower submitted a fraudulent loan application; or (4) the foreclosue sale would leave a very large unpaid deficit.

I'm away from the office so I can't look up, confirm and cite specifics; the foregoing is from memory. I urge you to contact and negotiate with the holder of the 1st.