Legal Question in Real Estate Law in California

Foreclosure and Refinanced Loan

I had posted a question before, but realized I need to added some details that would make a difference in what answers I get back, so here is the revised question:

We currently have an investment rental property where we had refinanced, pulled cash out, and got one new loan that is a deed of trust. Because the property has significant negative cash flow, b/w 380-500K/mthly, our accountant has advised that we let the property go into foreclosure and get rid of the property. On the legal side, we want to be sure we understand the rules before proceeding. We heard that banks are more strict on pursuing homeowners with homes that have been refinanced. From a legal aspect, what can the lender do if we let these homes go into foreclosure? Are they limited to just the property as collateral or can they seize other assets? Can they issue a deficiency judgment? Will they issue a 1099?


Asked on 8/19/08, 6:24 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Foreclosure and Refinanced Loan

I don't see any changes in facts or additional facts that would cause me to answer differently that I did to the version received by me about 40 minutes earlier. Cash-out refinancings of non-owner-occupied income property give the borrower a fairly high risk of being pursued for a deficiency, especially if the lender has done an asset search that shows the borrower has other property which could be levied upon to satisfy a deficiency judgment. Further, refinancing loans for non-owner-occupied property generally meet the legal tests for judicial foreclosure proceedings including a request for a deficiency judgment. You are at the high end of the risk scale. Even so, the risk may be worth taking. I do not have any information on the actual percentage of lenders in this or any other circumstances who elect to go to court for judicial foreclosure and a deficiency judgment vs. the quicker and initially cheaper process of foreclosure by trustee sale.

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Answered on 8/19/08, 8:04 pm


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