Legal Question in Real Estate Law in California

Re: Real Estate Loan Default

Generally, so long as the 1st trust deed holder elects a non-judicial foreclosure, then there can be no deficiency where it is your primary residence. The lender has to "elect" one of two remedies for recovery of what they are owed, and 90% of the time, the elect non-judicial foreclosure which prevents them from taking further action (in most cases) to collect any deficiency. This is often referred to as the "one-action rule." The second is another story. In some rare instances, a second who is "sold-out" - in other words, they lose the collateral for their loan and receive nothing from a foreclosure sale - is barred from pusuing a deficiency. In your case, where it is a HELOC (which says with a great deal of certainty that it was not a purchase money loan), the lender can pursue you for the entire balance, less whatever (if anything) they recover at foreclosure sale. In other words, just because their collateral (the home) is gone, the promissory note you signed promissing to repay them is still valid and enforceable. Depending upon the size of that loan, you may need to consider bankruptcy to clear this up, or you may be able to negotiate some sort of settlement of the debt with the lender.

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Re: Real Estate Loan Default

Mr. Gibbs answer is correct except for the part about the one-action rule. A foreclosure by trustee sale is not an "action" and does not invoke the one-action rule. Otherwise he is correct - if any lender uses a trustee sale, it cannot seek a deficiency judgment. It can, however, still sue you (but rarely does it happen) for "junk" reasons like loan-application fraud or waste of the collateral.