Legal Question in Real Estate Law in California

It depends. If the junior TD was part of a purchase money package, such as where you take an 80% first TD, a 10% second, and put 10% down, AND it was for purchase of your personal residence, AND it was never refinanced, AND the second was not a HELOC that you paid down and then drew up again for improvements or other spending, then the junior lender is out of luck. Otherwise the junior lender becomes an unsecured creditor and can proceed to collect on the note. If the foreclosing senior gets more than it is owed, it must remit the balance to the junior to pay down your debt, but if there is nothing left after the first collects what it can, or if there is a balance left on the second, it is a personal debt that they can pursue in collections and/or court.

What Mr. McCormick refers to is what is known as the anti-deficiency prohibition in purchase money mortgage situations as set forth by Code of Civil Procedure section 580b.

Generally, when the senior trust deed holder forecloses, the junior trust deed holder is what is known as a frozen out junior lienholder. The junior lienholder is not subject to the one action. security first rule of Code of Civil Procedure section 726, because the security has been wiped out by the senior's sale. The general rule is that a junior lienholder is not prohibited from suing directly on the note, which is tantamount to a deficiency judgment, although a true deficiency judgmen is the difference between the amount of the debt and the amount realized at the foreclosure sale. In this situation, the deficiency is debt, minus zero.

Allowing a frozen out junior lienholder to sue on the note comes with exceptions, as do many things in law. For example, the sold-out junior lienholder exception does not apply where a single lender holds both the senior foreclosed lien, and the junior lien and claims to be frozen out. (Simon v. Superior Court (1992) 4 Cal.App.4th 63, 76-77.)

There are other exceptions as well, but I would need more information to tell you whether or not they applied.

I usually hear and use the term "sold-out junior" (rather than frozen out) to describe what you refer to as the non-foreclosing lender.

The sold-out junior can sue the borrower on your/its note, which has become unsecured through no fault of its own, without regard for the antideficiency laws, except that, as Mr. McCormick points out, many holders of purchase-money seconds cannot sue after a foreclosure sale by the holder of the first leaves them not fully paid.

The law is pretty comlex because the antideficiency provisions are scattered in several sections of the code, and the Supreme Court has created rules and exceptions that are not obvious even from a careful reading of all the statutes.