Legal Question in Real Estate Law in California

You and about 11 million other people have this problem. In spite of their assurances to Congress that they work with people who are current on their loans, the lenders will normally not do anything as long as your loan is current. Because it is investment property, the lender could foreclose through a judicial foreclosure, which would allow them to look to your other assets to make up the difference of their loss. Usually, they do not go that route because is is more costly and time consuming. There is a lot of details that are missing in your question, and you should speak with a tax and real estate attorney for more information.

First, don't presume your payment will go up when the loan converts to a fully-amortized basis. I have a client whose monthly payment actually dropped because the underlying (index) rate was very low. Unless you have done the calculation, you may get a pleasant surprise.

You do not appear to qualify for the insulation from suit for judicial foreclosure and deficiency judgment provided by Code of Civil Procedure section 580b (or any other provision of law), because, although the loan is purchase money, it is a third-party (not seller financing) loan and the property was not intended to be owner-occupied.

Nevertheless, we do not see lenders going for judicial foreclosure and deficiency judgments very often, especiallt the big banks, and especially where the borrower has not committed waste or fraud, or does not seem to be wealthy and perfectly capable of paying off the loan from readily-available funds. I can't say you have no risk, but many others in your situation are getting foreclosed the easy way, by trustee sale, and the bank is not going for the deficiency.

What Mr. Whipple is telling you in a round about way is that if the bank foreclosed through a trustee's sale, what is known as nonjudicial foreclosure, section 580d of the Code of Civil Procedure would prevent the lender from suing you for a deficiency judgment. Of course, this does not apply to waste or fraud cases. He is also pointing out that your worry may be premature and needless.