Legal Question in Real Estate Law in California

Re: foreclosure on real property in living trust

Yes, absolutely! A living trust does not protect the trust beneficiaries from loss of the property. After the foreclosure sale, the real property will be sold and gone. The trust will no longer own it. The occupants of the property, if any, are subject to eviction by the new owner. The trust's, or the trustor's, other assets are subject to suit by sold-out junior lienholders and possibly subject, in a judicial (court) foreclosure, to a claim for a deficiency (sale proceeds less than amount owed).

This assumes that the "living trust" is a standard-definition revocable trust where the trustor (settlor) is also the trustee during his/her/their lifetime(s), and the trust become irrevocable and under the trusteeship of one or more of the heirs after the seath of the trustor(s).

Even an irrevocable trust would generally not be creditor-proof against, say, the lender on a mortgage; the lender could either foreclose because the obligation being foreclose was prior to the transfer to the trust, or could attack the transfer to the trust as fraudulent.

The real-property lending industry early-on figured out how to be close to 100% certain of having the collateral available for foreclosure in the event of a borrower default, including the requirement of fire insurance. Recent history is showing that they left one of the barn doors wide open, however; they have no protection against steeply-declining market values and "underwater" collateral.