Legal Question in Real Estate Law in California

Re: Real Estate

You need to pay a real estate/bankruptcy attorney to advise you. Our CA attorney is familiar with these issues.

Re: Real Estate

It depends upon many things. If the loan was "purchase money" and the property is a 1-4 unit residential property, they cannot do anything but take back the property, unless there are special circumstances, like fraud in the making of the loan. If the loan is not "purchase money" and if the property is not worth the amount of the loan, they can choose to foreclose judicially and try and get a deficiency judgment, but most lenders will not do this unless there is a gross difference between value and the loan, because it is expensive to them and they must await expiration of your right of redemption to resell. Take all your documents to an attorney who specializes in real estate--this area is complex and it is important that you get an attorney who is savvy with foreclosure laws.

Re: Real Estate

If the bank forecloses, they may sue you for a deficiency only if 1. the home is not your primary residence or 2. If the loan was not incurred in order to purchase the home. Note that the law on deficiencies and refinancing is up on appeal, so whether you will be liable for a deficiency if the home was refinanced is questionable.

Re: Real Estate

What you're asking is whether the lender can come after you for a "deficiency judgment" for the amount by which a foreclosure sale falis to pay off its loan, plus costs of sale. A very brief summary of the laws is as follows:

Code of Civil Procedure section 726, which requires the creditor to go after the security before going after the borrower, and limits the creditor to but one civil suit, but allows for foreclosure and a deficiency judgment in a judicial (in court) proceeding brought under it (unless the deficiency judgment is prohibited under another of the antideficiency statutes);

CCP 580d completely bars deficiency judgments when there is a private rather than judicial foreclosure sale, e.g. by a trustee under the power of sale provision in a deed of trust;

CCP 580(b) prohibits deficiency judgments after the foreclosure sale of real property that secures a purchase money loan. Under 580(b) the protection applies to any property where the seller provided the loan, but if it was third-party (e.g., bank) financing, the protection applies only if the purchaser resides in some part of the property and it is a one-to-four unit residential structure. I understand there is at least one case working its way through the appeals process which may hold that a refinancing loan is also a purchase-money loan IF it really only refinanced the purchase loan and no new equity was taken out.

There is a three-month time limit for seeking a deficiency judgment, if one is available at all, after a foreclosure sale. Finally, a creditor can get a deficiency judgment, if at all, only if the foreclosure sale produced "fair value" for the property. This is protection against sneaky or defective sales.

This should give you some guidelines to see whether bankruptcy, loss of your IRA, etc. is a serious worry or not. However, keep in mind that this simplified analysis boils down 100s of pages of statutes, decisions and analysis, and there are exceptions and related laws that I couldn't cover.

Finally, keep in mind that there are other things a really unhappy lender can sue you for, such as filing a fraudulent loan application, or committing waste on the secured property (this is a tort that includes failing to fix a leaky roof or logging off the beautiful redwoods in the front yard so that the value of the collateral is impaired.)