Legal Question in Real Estate Law in California

Re: Second mortgage

At the outset, you should be aware that Arizona foreclosure laws will govern in your situation, not California. I can tell you whether they can do what they are threatening in California, but it may be different in AZ. In California, if the second loan was not created at the time you initially purchased the property but sometime after (even a matter of days), the holder of the second deed of trust can elect to do one of two things when the first trust deed holder starts foreclosure: 1) they can step in and "cure" the foreclosure with the holder of the first, by making all the payments you did not make, etc., and then do their own foreclosure; or,2) they can wait until the holder of the first deed of trust forecloses and "wipes out" or extinguishes their security interest and then go after the borrower, you, for a money judgment for the amount of their unpaid loan. If they choose the latter alternative and they get a judgment, (which is not hard to do, unless you can prove you paid their loan in full!) they can execute or satisfy their judgment against ANY property you own, including your home. When they try to satisfy their judgment against your home, they can only recover the value of your equity after factoring in any loans on your home and reduced by any homestead. When they satisfy a judgment against your home, it is not called a foreclosure sale, per se, it is a sheriff's sale or a "lien" sale. If the money they get from a sale of your home does not satisfy the judgment lien, the balance will continue to be owed, and in California, unpaid judgments accrue interest at 10%.

Re: Second mortgage

You're asking a question that appears to require application of Arizona law, and it was directed to California attorneys by your selection of "CA" for applicable law.

Whether or not a lender can go after a borrower for what is called a "deficiency judgment" after a foreclosure depends upon state law, and I'm pretty sure there are differences from state to state. In California, the lender cannot go after the borrower if (a) the foreclosure was under a trustee's power of sale on a deed of trust, or (b) the loan was a purchase-money loan.

In your case, since it is the holder of a second that is after you, it's more likely than not this loan was used to borrow out equity after your purchase, rather than as part of your initial purchase or a refinancing of the purchase-money loan. So that would elimnate one of your statutory safe harbors. The remaining question would be whether the foreclosure was by trustee sale or by a judicial proceeding in court. Lacking that information, I can't say whether or not you'd have safe harbor by reason of the trustee-sale prohibition on deficiency judgments.

In any event, this is all just theory because you need an answer based on Arizona's statutes, and the foregoing discussion is based on California law.