Legal Question in Real Estate Law in California

There are two conditions under which the bank would be prohibited from coming after your other assets to satisfy the deficiency. First, if they use a non-judicial trustee's sale to take back the house (what most people think of as a foreclosure), the "one form of action rule" prohibts them from thereafter filing a suit to collect the balance of the debt. Second, if the loan on the second property was made at the time you purchased the property and was entirely used for the purchase of the property, what is called a "purchase money loan," and you occupied the property in whole or in part, then there is a statute in California that prohibits the lender from pursuing any other assets. If the loan was a refinance or for any other reason was not the actual money paid into escrow to buy the house, the bank has the option of filing a lawsuit for judicial foreclosure (true foreclosure) and in that same suit they can ask that a judgment be entered for any deficiency. After selling the property through the court and getting a judgement for the deficiency, they would then be able to go after any other assets you have.

You say the current loan is the "first and only" one, but that the property is a "second home." These facts allow for a fairly straightforward analysis. The lender is entitled to a deficiency judgment under applicable law (Code of Civil Procedure section 580b) because, while you meet the purchase-money test for an exemption, you apparently don't meet the owner-occupied requirement to be exempt from from deficiancy judgment. If, however, this were a true second home and not purchased or used as an income or investment property, you might still be able to claim an exemption.

Nevertheless, lenders do not often, as a practical matter, choose to take defaulting borrowers to court for a judicial foreclosure and deficiency judgment, the only route to obtaining a deficiency judgment. It is too time-consuming and expensive. However, if the borrower is perceived to have deep pockets, or the lender is irritated with the particular borrower for some reason, it may choose to go the judicial foreclosure route rather than use a quick and cheap trustee's sale.

Therefore, you have some limited exposure to attack by the lender against your other assets.

In addition, there are provisions allowing suits for loan-application fraud (Code of Civil Procedure subsections 726(f) and (g), and for deliberate damage to the collateral. Hopefully, none of this applies in your situation.