Legal Question in Real Estate Law in California

This is a rather major decision, and I would advise doing some research and planning before just cutting and running.

First, you don't say whether, nor how far, "under water" you are with your two loans, Real estate prices have perked up here and there in California....I am trustee for a home that has increased in value by 20% since November, 2012. Try to get a current valuation and try to project how long the recovery would have to continue before you could sell and break even, or better. Obviously, some communities will recover a lot more slowly, but check it out.

Next, I think the main danger of walking away from a property with two loans is that the holder of the first will foreclose first, leaving the holder of the second without collateral. It becomes what's called a "sold-out junior" lender, and as such can sue you. That's different from the situation with a lender that has a good deed of trust, which is limited to foreclosure as its remedy.

If you abandon a property, and something happens to it before a foreclosure, the lender(s) could sue you for "waste," alleging that you failed to maintain and protect their collateral, as you agreed to do when you borrowed. This is uncommon, but it can happen. Maybe you can find a tenant who would care for the property responsibly and pay enough rent to cover the loan payments until values recover. Maybe a local income-property-management firm can give you some tips.

Maybe the lender(s) could give you some relief, such as a loan modification, consolidation, or a short sale. Marginally better than just defaulting.

Finally, if you walk away, or allow a foreclosure without walking away, there will be fairly serious credit consequences which will follow you for years, wherever you go.