Legal Question in Real Estate Law in California

California has a set of statutes in place called anti-deficiency legislation. These statutes have been in place since the Great Depression. These statutes limit or prohibit deficiency judgments. A deficiency judgment is a judgment for the balance owed on a promissory note that was not satisfied by foreclosure.

One particular statute, Code of Civil Procedure section 580d, prohibits a deficiency judgment after a lender fully exercises the power of sale in a deed of trust. That is commonly called nonjudicial foreclosure. If a lender chooses to complete a nonjudicial foreclosure, they are stuck with what they get for the property at the foreclosure sale, or later when they sell the property as an REO. They are barred from getting a judgment in California for the remaining balance.

In order to get a deficiency judgment, a lender would have to file a lawsuit to foreclose. But another anti-deficiency statute, Code of Civil Procedure section 580b comes into play. That section prohibits a deficiency judgment in any foreclosure involving a purchase money loan. Determining whether or not this statute applies is factually intensive, and is best analyzed by an competent attorney experienced with this area of law.

There are several other provisions of anti-deficiency law, and as you can see, the answer is not simple, but deficiency judgments, which would create a lien, are rare in California.

Mr. Roach has given you an excellent answer. I have only one thought to add: In situations where there are both a first and a second (or more) deeds of trust, and the holder of the first does a nonjudicial foreclosure, then the holder of the second (or higher) deed(s) of trust lose their collateral and become unsecured creditors of the borrower. As such, they can sue and get a judgment that could be enforced against the borrower's "other assets," and not limited to the now-gone original liened prooperty. They are called "sold-out junior" lenders.