Legal Question in Real Estate Law in California

A proper and full analysis calls for a lot more information than given here, including who has signed or co-signed the current loans, how badly underwater the house is, and whether the current occupants are paying or will pay rent. Also, was the house occupied by at least one owner at the time of the refinancing?

Loans on non-owner occupied and/or refinanced houses are higher risk to the borrower because they are less likely to be protected by law against suits seeking recourse to the borrower in a judicial foreclosure. However, if the deficiency is small (the house isn't far under water), the property is being cared for and the taxes paid, andthere is no hint of fraud in the loan application(s), the risk of the lender seeking a deficiency is quite low.

You need an economic as well as a legal analysis. If factors such as loan-to-value, market trends, rental income potential, your financial resources, etc., are unfavorable, you should consider letting the property be foreclosed or a short sale. Be careful to avoid entering into a short-sale agreement that increases your exposure to recourse for the deficiency.

As I said before, there aren't enough facts in the question to give you actual advice, but these comments should point you in the direction of getting the advice you need and/or figuring it out yourself. Study the economic questions as they apply to the owners' personal circumstances and needs.