Legal Question in Real Estate Law in California

Re: Walk away

You'd lose your equity and ruin your credit. Why would you walk away if your loans are only 100k and the house is worth 360k? Sell it, or talk to the lenders about recasting the payment terms.

Re: Walk away

Two possibly decisive facts are omitted: First, did you buy this house to be owner-occupied, as opposed to an investment or income property? Second, is the lender on the 2nd mortgage the seller?

If the answer to either question is "yes," you are pretty safe from "legal consequences" such as a deficiency judgment.

On the other hand, if the house is both non-owner-occupied and third-party financed on either loan, you might be hit with a deficiency judgment after a judicial foreclosure.

I understand that judicial foreclosures are relatively rare; most lenders, even if potentially entitled to a deficiency judgment, electing to go the faster and cheaper route of foreclosure by trustee's sale.

So, you have three escape routes: owner-occupancy, seller financing, or reluctance of the lender to go to court. Any of them will protect you from a deficiency judgment.

There could be "legal consequences" for other reasons if there were loan-application fraud or "waste" of the collateral, such as trashing the place on the eve of foreclosure.