Legal Question in Real Estate Law in California

Re: Effects on third party credit when lossing property

This is indeed something to worry about; the lender can come after the guarantor (co-signer) in some cases, especially in bankruptcy.

The California law on the liability of co-signers and their defenses to suit by the lender is, somewhat surprisingly considering how often the issue must arise, somewhat in doubt. However, there is little doubt that, at some point in the proceedings, whether before or after the bankruptcy is discharged and/or the house foreclosed by relief from the automatic stay, the lender can come after the borrower for a deficiency.

Your question says "they" decided to file for bankruptcy - do you mean both the father and brother-in-law filed BK? Why the father, if he had owned a house for 14 years and never missed a payment?

I think you need to place all the facts before a local attorney at once. Probably a bankruptcy attorney, although if you can find a real estate attorney with foreclosure experience who isn't too busy, maybe that's work too. I gotta tell you, the law surrounding guarantors of home loans, and the law of guarantors in bankruptcy proceedings, are each pretty complicated, and when they intersect, as here, the situation requires full facts and careful analysis. It's also sometimes necessary to act fast.

Maybe between the two of them they can figure out a plan to bail the property out and get both the default and the bankruptcy dismissed; if there is enough cash in the family's hands, some kind of global resolution might be better than going through bankruptcies, foreclosure proceedings, loss of both properties, and on and on.

Don't let anyone kid you into thinking there is a single easy solution to this set of problems.