Legal Question in Real Estate Law in California

Refinancing does not change anything except that the money is now not purchase money so the anti-deficiency statute no longer applies and the bank can go after you for the full amount of the loan. Unless the bank greatly reduced the principal on the loan, instead of just spreading it out over more years, all it is offering you is a longer period of time to make the payments and the chance to pay even more in interest.

If you are the homeowner, you are most likely the trustor under the deed of trust. The homeowner does not initiate foreclosure. Foreclosure is initiated by the beneficiary under the deed of trust when the trustor defaults.

Refinancing can take many forms. As Mr. Shers points out, refinancing by a third party lender, such as a bank, takes any original purchase money loan out of the anti-deficiency protection of Code of Civil Procedure section 580b. Most third party refinancing extinguishes the original deed of trust, through a reconveyance, and replaces it with a new deed of trust. The new deed of trust can be foreclosed upon default of the underlying obligation that it secures.

No, refinancing does not take away a lender's right to foreclose. Indeed, a refinance gives the lender additional options in choosing foreclosure procedures and remedies, because a purchase-money loan carries with it certain protections and limitations favoring the borrower that are lost (at least, usually) when the loan is refinanced.

Whether you should let the property go now, or refinance and (probably) let it be foreclosed later on, is a tough decision that requires weighing a number of factors, including whether the property will recover and gain value in the next year or two, whether you have housing alternatives, your income and tax situation, and the effect on your credit rating.

I have seen a couple of appellate cases holding that refinancing with the same lender does not take the loan out of the anti-deficiency protection of CCP 580b, at least not always, but that is just one of the factors you'll need to consider in deciding whether to bite the bullet now or later.