Legal Question in Real Estate Law in California

Re: can new home be taken if our rental property is forclosed on?

ALL your assets will be at risk if and when the lender obtains a deficiency judgment against you. Your credit will be ruined, of course, by allowing foreclosure.

Re: can new home be taken if our rental property is forclosed on?

Answering this question requires using a fair number of "ifs" because the result depends upon several omitted facts.

I suppose the safest way to answer is to say there may be a threat to your newly-acquired primary residence in maybe two, possibly more, scenarios.

The first is if the property that is now a rental was originally (at time of purchase) your primary residence, but now has a non-purchase-money (refinancing) second on it.

The second is if the property was originally bought for an investment, not your primary residence, and has any kind of a second or any non-purchase-money loan, first or second.

In either of these two cases, a lender that isn't paid off from the proceeds of a foreclosure sale may be entitled to a judgment, either a deficiency judgment after a judicial foreclosure or as a result of a separate suit to collect on a note that has become unsecured, i.e., the lender has become a "sold-out junior."

The judgment obtained in either scenario would be recorded and thus become a judgment lien on any other property you own in any county where the judgment is placed on the public record.

There may be other risk scenarios; for example, if the loans are linked by their terms through cross-collateralization or cross-default provisions, but I think this is uncommon in residential lending. Diverting rent money from the rental property for any other purpose than paying the mortgage during the first year of ownership may be "rent skimming" which is illegal, but I'm unsure that would affect the other house. Finally, I would mention that some lenders will look for loan-application fraud or waste of the collateral and pursue remedies for these matters separately from the loan default.