Legal Question in Real Estate Law in California

There is a fairly complex flow chart that an attorney and his or her client need to go through in order to determine the client's degree of exposure to a lawsuit from a lender, after a foreclosure, seeking to recover additional monies from the defaulting borrower. In addition to a deficiency judgment which may result from the sale proceeds not covering the amount due on the foreclosed loan, the borrower must consider suits for loan-application fraud, waste in the care and management of the collateral, and suits from lenders on other loans (e.g., a HELOC or second mortgage) than the one being foreclosed.

If you have only a purchase-money first deed of trust, i.e., a loan used to acquire the house, you are at the lowest possible risk level. Factors that add to your risk include a second mortgage or HELOC; doing a refinancing; financing on a property that is not your principal residence; being someone the bank knows has other assets; "fudging" the numbers on your loan application (i.e., committing fraud); failing to take decent care of the collateral including paying the property taxes and keeping it insured; failure to cooperate with the lender; and/or borrowing from someone other than a big financial institution that can afford the loss --- any of these will increase your risk in one way or another.

If you have none of the risk factors, or have only a purchase-money first, you should be fine. With one or more risk factors you have an ever-increasing risk of a successful suit for something or other. Nevertheless, suits by lenders against defaulting borrowers are rather uncommon and I wouldn't lose too much sleep over it.