Legal Question in Real Estate Law in California

Theoretically the mortgage holder would auction off the building and the borrower would be entitled to anything over the $300K (yes, another way to say this is that there is a $300K lien). But auctions usually don't fetch as good of a sale price as a regular sale, so the borrower in your question would be foolish not to sell the property and repay the loan before a foreclosure.

The lender cannot foreclose without there being a lien first. Foreclosure is the process of enforcing the lien and selling the property at auction. At the auction the lender will tender what is called a "credit bid." That will be the full amount owed on the defaulting debt: principal, interest, late fees, and all other fees and expenses due under the loan in the event of default, including usually attorneys fees and foreclosure expenses. If no one bids more, then the lender becomes the owner of the property, and the borrower is out of luck. If someone else bids more at the auction than the lender's credit bid, that person gets the property, the lender gets paid the full amount of the credit bid, and any left over funds go to the borrower. In any case, the borrower no longer owns the property.