Legal Question in Real Estate Law in California

The name doesn't matter so much as the funding sources. The secret source "Deep Throat," who helped Woodward and Bernstein crack open the Watergate cover-up, famously said, "Follow the money." That applies even more to collecting judgments. If your husband gets a deficiency judgement against him, creditors can attempt to collect by following his separate property and his community share of community property into any asset. The only way to keep your assets safe from collection of a judgment against him alone is to absolutely segregate them from all of his separate property assets and all community property assets. Once things are mingled, they're fair game for creditors.

First, technically, what a lender might pursue after a short sale would not be a "deficiency judgment" in the usual sense of that phrase. A "deficiency judgment" is a judgment for a deficiency after a judicial foreclosure. If there is a short sale, there is no foreclosure. Nevertheless, I understand what you mean by your question, and am only suggesting that you might avoid conceptual confusion if you understand what "deficiency judgment" encompasses and what it doesn't.

Next, the results of short sales are variable because they are private contracts whose terms can vary substantially and the results of short sales are pretty much outside the statutory guidelines for foreclosures, etc. A short sale can be negotiated and written up so that it is a final settlement of all issues between the borrower/seller and the lender, and that seemingly was their original purpose. Lately, lawyers are seeing a lot of short-sale deals being written up that don't discharge the borrower - often making them less desirable than the foreclosure they are intended to avoid.

So, my suggestion is to insist on a deal that terminates liability for the loan. Failing that, maybe try a "deed in lieu of foreclosure" or just let the lender foreclose, taking the risk or a little more credit damage than a short sale and a small risk that they foreclosure would be judicial with a deficiency judgment claim. We see a strong propensity of lenders to choose foreclosure by trustee's sale because it is quick and cheap. The few cases where lenders resort to court foreclosure and ask for deficiency judgments seem to involve one or more of the following factors: "fat cat" borrowers who obviously can pay a judgment; cases where the borrower and lender are in a dispute and don't like each other; cases where the borrower has neglected or damaged the collateral property; where loan-application fraud is suspected; or where the lender is a private individual or a small investment group instead of a large financial institution and can't afford the loss.

Insofar as whether a non-owner, non-borrower spouse could be held liable, this comes under the Family Code, and I do not practice Family Law, but my feeling is that the spouse is liable through the marital community under Family Code sections 910 and 911 which provide, with exceptions, that the community is liable for the debts of either spouse incurred before or during marriage.