Legal Question in Real Estate Law in California

Re: Foreclosure/Short Sale

Maybe you are not using a lawyer in the divorce. If so, could be you are shouldering more of the post-divorce debt burden than necessary. A good divorce lawyer should be able to answer questions about non-purchase-money seconds and deficiency judgments or "sold-out junior" lienholders rights, and also make sure your former spouse is not getting too many assets and you getting too many burdensome debts.

The basic rule here is that when a junior ecured lender becomes unsecured through no fault of its own, such as by the borrower defaulting on the first and allowing the senior lien holder to foreclose, the former junior lienholder becomes an unsecured creditor of the borrower, and is no longer bound by the rules limiting it to proceeding against the collateral and limiting its recovery to the sale value of the (former)collateral. This is probably fair in theory, although it looks in practice as though the junior creditor has more rights and remedies than the senior, who is limited to the foreclosure proceeds.

Whatever, you are in a tough spot, but whether BK is necessary or advisable should be analyzed by a bankruptcy specialist that can sit down with you and go over all aspects of your personal financial situation and the particulars of this loan. Lenders often don't go after borrowers for deficiencies if the amount is small and the borrower seems not to have other assets that can be used to satisfy a judgment. Also, borrowers who may have fudged on their loan apps. or haven't taken care of the property are more likely to be sued than are obviously honest folks.