Legal Question in Real Estate Law in California

This is a classic example of a property and a loan where the lender is eligible to use judicial foreclosure along with a request for a judgment for any deficiency. However, the way you pose your question ("If the bank uses non-judicial foreclosure") forces a NO answer. Non-judicial foreclosure, i.e., sale by a trustee under the power of sale in a deed of trust, can never include a deficiency judgment for the foreclosing lender.

If you had asked your question differently -- without specifying non-judicial foreclosure -- I'd have said that your lender MIGHT choose the judicial foreclosure route, in which case it would be eligible for a deficiency judgment.

In practice, we are not seeing a high proportion of lenders electing judicial foreclosure over trustee sale, even when they are eligible for a deficiency judgment because there are no statutory barriers to getting one, as in your circumstances. Trustee's sales are just so much quicker and easier, and the outcome more certain. However, there certainly are cases of lenders going for the deficiency judgment. Factors that seem to prompt lenders to go for judicial foreclosure and deficiency judgment seem to include: (1) the lender's awareness that the borrower has deep pockets, including hard-to-hide assets that can be levied upon to satisfy the deficiency judgment; (2) non-institutional lenders like family partnerships and small pension funds that cannot afford to take a "hit;" (3) situations where the lender is irritated with the borrower for being uncooperative; (4) situations where the lender believes the borrower has committed fraud or waste.

You also need to consider any second loans. If the first forecloses, and the second lender becomes unsecured without fault of its own, it can sue without regard for the anti-deficiency statutes.

Mr. Whipple is right, but I would point out that the nonjudicial foreclosure bar of Code of Civil Procedure section 580d does not come into play and shield you until an actual trustee's sale has been conducted. Their is case law that states a beneficiary may start both procedures, judicial and nonjudicial, and stop the actual nonjudicial prior to the trustee's sale. In that situation, the lender could obtain a deficiency judgment after an aborted nonjudicial foreclosure.