Legal Question in Real Estate Law in California

Foreclosure liability

Can a lender who forecloses on a property, under a deed of trust,obtain a deficiency judgement against a borrower? Does the lender have to accept the property back as deed in lieu of foreclosure?


Asked on 8/08/01, 12:52 pm

2 Answers from Attorneys

Judith Deming Deming & Associates

Re: Foreclosure liability

Yes, in certain circumstances and depending upon other factors such as whether the property is commercial or residential and the character of the loan (purchase money or non-purchase money, etc.) and whether the foreclosure is judicial or non-judicial. A lender never HAS to accept a "deed in lieu of foreclosure", and they certainly will not where to do so will affect their ability to obtain clear title due to a borrower's right of redemption and where a defaulting borrower may well have other liens on the property.

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Answered on 8/08/01, 4:53 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Foreclosure liability

Answer to #1: NO, deficiency judgments are not allowed in California IF it is foreclosure by trustee's sale (rather than judicial foreclosure) AND it was a purchase-money loan.

Answer to #2: NO, the lender does not have to take the property back by 'deed in lieu of foreclosure' if it doesn't want to; occasionally they will, to save the cost and trouble of a sale, but the usual foreclosure is carried out by a public auction. Often the lender acquires the property at the auction but this is by trustee's deed, not deed in lieu. Anyone but the trustee and people working for him (e.g.,the auctioneer) can bid, including the lender and the borrower.

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Answered on 8/08/01, 5:00 pm


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