Legal Question in Real Estate Law in California
I have three questions regarding a foreclosure in California. First, if a lender holds two deeds of trust on an investment property (the first being a $300,000 note to purchase and the second for $200,000 for a HELOC) then can the bank obtain any deficiency judgment after completing a non-judicial foreclosure on the second or first when I defaulted on both? The bank is foreclosing under the junior lien (the HELOC loan). I know for certain that under CCP 580(d) no deficiency will be allowed for the junior lien, but I'm not certain about the senior lien that the bank owns as well. Could they obtain a deficiency judgment on the senior lien? Secondly, I owe a substantial amount in back property taxes on this property (about $25,000) from the last several years. I've been unable to pay these amounts because of financial problems. I have taken massive losses each year over the last five years. However, I do have other assets and properties that I own free and clear. I used a lot of my savings trying to make my mortgage payments but those have been depleted as well. Once my tenants stopped paying I couldn't even make my mortgage payments. I'm worried about a bad faith action against the bank after foreclosure. I'm worried that they may try to argue by saying something to the effect of: "hey, he could of sold his other houses and paid the property taxes." Lastly, I've read that suing for bad faith action is under tort law. Would the bank be permitted to obtain a prejudgment lien on my other properties if they decided to sue? If so, how likely would it be? To my understanding they would have to convince the court that they have a pretty solid case. Any advice would be greatly appreciated.
2 Answers from Attorneys
The answer to your first question is "no." Under Simon v. Superior Court a bank holding two deeds of trust and two loans cannot foreclose on one and then sue for deficiency on the other. Your concern about the property taxes is misplaced. When a lender forecloses on a property they take responsibility for any tax liens without recourse against the borrower. I also have no idea what you are talking about regarding a bad-faith lawsuit. The tort of bad-faith is a cause of action that insureds bring against insurance companies for wrongful denial of claims. It has nothing to do with borrowers and lenders.
I agree with Mr. McCormick. A lender is not considered frozen out when they hold both the first and second deeds of trust, and is not permitted to obtain a judgment on one of the notes. Bad faith actions are between insurers and their insureds, not in situations involving deeds of trust and secured property transactions.
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