Legal Question in Real Estate Law in California

You need to check the type of loan/mortgage you have and see if it is a non-recourse 1st mortgage loan. If that is the case, the bank's recourse is to take the house. If it is a personally guaranteed second, you are responsible.

You don't, not after the fact. If this was a 'purchase money' 1st TD mortgage that originally bought the property, they probably can't sue you, except for fraud if they could prove that. However, if this is a recourse loan, like a refi or 2nd, they could sue you for any deficiency after foreclosure. That's the risk you accepted by getting such loan. With a judgment against you, a creditor could collect by levy on any assets they find, including all personal and real property, stock, bank accounts, etc., and garnish your wages. You could negotiate, defend litigation, or file bankruptcy as appropriate. If you need legal help in this, feel free to contact me.

Both the previous answers are seriously incomplete and contain inaccurate information. First off, if you took out the loan yourself, as opposed to the corporation taking out the loan, the idea that you had to give a personal guarantee is silly. It's your loan. You don't then have to guarnatee it too, for you to be personally liable. It also doesn't matter if the loan was a 1st or a 2nd or a 53rd. What matters is whether or not it was a purchase money loan. What that means is whether the loan was made at the time you bought the property and was it used entirely for the costs and expenses of acquiring the property. Many people take out an 80% first and then a 5%, 10% or in the bad old days even a 20% second to come up with the 100% purchase price of a home. So it doesn't matter if it was first or second, only that it was used to buy the house. If so, California has an anti deficiency statute that prohibits the lender from going after anything but the house.

Even if it was a refinance or a loan added after the property was purchased, however, Mr. Nelson is completely wrong that they can sue you for the balance after foreclosure. In California most foreclosures are done by way of an expedited procedure that is technically called a Trustee's Sale. There is no court involvement. The lender simply follows the statutory notice steps by recording a notice of default, waiting the stautory time, giving a notice of sale and then selling the property (although over 90% of the time the lendere winds up buying it at the price of the outstanding debt). Because this gives the lenders a great tool to take the property quickly and cheaply in event of default, the law provides that if the lender choses that route they cannot thereafter sue for the balance of the debt. This is called the One Form Of Action Rule.

Only if the lender elects to forego the expedited trustee's sale process, and instead sues on the debt and for a judicial foreclosure, can the lender foreclose on the property and then recover any deficiency.

Mr. McCormick's answer is correct up to the point where he calls the prohibition against going for a judgment for the balance of the debt an example of the "one form of action rule." A trustee sale is not an "action." The "one form of action rule" refers to something else. Nevertheless, the substance of what he says is right.

I would add just two more things:

First, whether your loan is "recourse" or "non-recourse" is more likely going to be determined by California statutes than by any language written into the note, deed of trust or other loan documents. The right to recourse is almost always going to be determined by statute, not the agreement between the lender and the borrower.

An finally, from a business-lawyer point of view more than a real-estate viewpoint. Even if your lender would be entitled to a deficiency judgment and could go to court to foreclose, the lender may not be terribly interested in, or tempted by, satisfying its judgment by levy on stock in a closely-held business. There is probably no market for the stock, the lender probably doesn't want to run the company, Most of the time closely-held company stock is of low interest to the creditor. Not always, to be sure.