Legal Question in Real Estate Law in California

See a bankruptcy lawyer. Maybe you can reduce the principal and interest on your rental properties through a Chapter 13 thus enabling you to make your primary mortgage payments.

It depends.

If the lender forecloses by conducting a non-judicial trustee's sale, then that lender is precluded from pursuing you for a deficiency judgment. (Code of Civ. Proc, sect. 580d.) A deficiency is the amount of the difference between what was realized at the foreclosure sale and the remaining amount of the debt.

In order to get a deficiency judgment against you, the lender must elect to sue you for judicial foreclosure. That means an actual lawsuit, in which the property is decreed sold. At that point, the issue then becomes whether your property qualifies for the purchase money anti-deficiency prohibitions of Code of Civil Procedure section 580b. Determining whether property is covered by the purchase money anti-deficiency prohibition of section 580b is factually intensive, and requires thorough analysis by a competent attorney.

Only if a lender obtains a deficiency judgment would that lender be able to pursue other properties that you own.

Many lenders who could get a deficiency judgment do not bother to do so because of the time and cost involved. I have several clients who could have been sued but were foreclosed upon by a non-judicial trustee's sale despite their exposure. I think the biggest risks are when one or more of the following is true: (1) You are a rich guy and the lender knows it; (2) You have been uncooperative with the lender to the point it has gotten their attention outside the usual low-ranking foreclosure worker bees; (3) You have damaged the property, failed to insure it, or failed to pay the property taxes; (4) The lender is a 'little guy' like a small business 401K or pension plan or an small investment partnership that can ill afford to take a hit; or (5) The lender suspects your loan application contains some fraudulent statements.