Legal Question in Real Estate Law in California

The laws (statutes) and court decisions interpreting them on cosigner/guarantor liability are so many and so diverse that it would be necessary for a lawyer to examine each document and its underlying set of facts individually. The results for your wife and you may depend, for example, upon whether the paers she signed make her a co-obligor or a guarantor/surety, and whether the obligation is purchase-money or a refinancing. Perhaps the relationship between your wife and the friend amounted to a general partnership, which could produce another entirely different set of consequences. In most scenarios, co-debtors, guarantors, sureties, etc. are at relatively high risk, and might not have protection under the anti-deficiency laws.

Family Code section 910(a) provides that your community property is liable for the debts of either spouse, contacted before or during marriage. However, 911(a) says "The earnings of a married person during marriage are not liable for a debt incurred by the person's spouse before marriage. After the earnings of the married person are paid, they remain not liable so long as they are held in a deposit account in which the person's spouse has no right of withdrawal and are uncommingled with other property in the community estate, except property indignificant in amount."

You might want to go to your county's public law library and ask the librarian to let you look at Vol. 2 of Roger Bernhardt's "California Mortgage and Deed of Trust Practice," published by CEB (Continuing Education of the Bar). Chapter 9, sections 9.86 through 9.117, discusses the problems encountered in classifying co-signers, guarantors, endorsers, sureties, etc., the circumstances under which they may become liable to the lender, and whether and when they are protected by the one-action and/or antideficiency laws.

You might want to sit down with a real-estate attorney and have the documents and the underlying property situations reviewed. I also advise against trying to hide assets, as this may result in a fraudulent transfer, but there is no harm in keeping your separate property separate to the fullest extent possible.

I agree with Mr. Whipple's response. It would appear that by "co-signing" your wife became a guarantor of the underlying obligations. The lender views her as additional security. This is particularly important, because you mention that the value of the property is less than the amount of the debt.

There is no magic paper that she could sign, because she has guaranteed these debts and I doubt a lender is going to want to release additional security at a time like this. But she is entitled to defenses, which are numerous as Mr. Whipple points out.

Some of the key defenses are not direct application of the anti-deficiency statutes, but estoppel to raise them based on the doctrine of subrogation. One of the key questions that I would have for you is whether she signed what is called a "Gradsky" waiver or has received a "Mariners" letter.

Post 1995 waivers are governed by Civil Code section 2856. If she signed something like that, I suggest you familiarize yourself with that statute.