Legal Question in Real Estate Law in California

Re: property

If your home is sold at a trustee's sale, one or more lenders may not receive everything that was owed to them. The lender who elected to foreclose must live with the results of that chosen remedy and cannot seek to recover any deficiency. A short-changed lender who did not foreclose MAY be able to sue you for the difference if their loan was not obtained at the time of purchase. If they receive a judgment on that suit and record it, it will then become a lien on any property you own including your parents' house.

A bankruptcy would solve not only that problem but also the potential problem of owing income taxes on the forgiven debt.

I have an office in El Centro if you have further questions.

Re: property

The previous answer is mostly correct.

To start, after a default a lender which is secured by real property must go after the collateral by foreclosure, and not after the borrower (with minor exceptions not applicable to residential loans).

When a foreclosing lender proceeds under the power of sale in a deed of trust, i.e., uses a private trustee's sale rather than a court foreclosure action, that lender cannot go after you for a deficiency judgment. If there is only one loan on the house, that's the end of the story.

If, however, there is a second loan on the property, and the 2nd lender loses its collateral due to foreclosure of the first, the lender becomes a 'sold-out junior" and can sue for the balance due it as an unsecured creditor. Upon getting a judgment, it could then enforce its judgment lien against other property, real and personal, that you own. Thus, second mortgages can in some ways be more of a problem that firsts.

A lender which elects to foreclose in court rather than by trustee sale is not entitled to a deficiency judgment if its loan is purchase money on your home. If it is a refinancing loan, the lender may be entitled to a deficiency judgment. Some recent decisions suggest that a refi by the original lender with no cash out will be treated the same as a purchase-money loan.

There are a couple other curveballs to watch out for. You can be sued by a lender for intentional waste, such as logging off all the redwood trees for cash the week before the foreclosure (not a likely problem in the 92234 Zip, but you get the idea). You can also be sued for fraud in filling out the loan application if you overstated your income, etc.

Finally, there are some additional rules for what happens when the foreclosure is by the holder of a junior lien, rather than the 1st, and when a first and a second were done at the same time with the same lender.

So, I guess the bottom line answer is "maybe," but very unlikely unless you have more than one loan or can be sued for fraud or waste.