Legal Question in Real Estate Law in California

Re: foreclosure

Whether a lender can seek what is called a "deficiency judgment" for the unrepaid balance of a loan after foreclosure depends upon two things: (1) whether the loan foreclosed is a purchase-money loan, and (2) whether the foreclosure is through a judicial proceeding or by a trustee under a power of sale in a deed of trust.

In general, you are safe from deficiency judgments if the foreclosure is by trustee's sale or the loan was purchase-money. However, if you did not occupy the property, i.e. you bought it for investment, you lose the purchase-money safe harbor if the loan was from a third-party lender and not carried by the seller.

There are two or three other worries. First, if there are junior lenders whose collateral is lost because of the foreclosure, they can sue you as unsecured creditors. Second and third, any lender can sue for injury they sustain because of "waste" or fraud in a loan application.