After a foreclosure, is a deficiency judgment permitted in California?

Asked by Abullock, 90503 Wed May 5, 2010

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Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Thu May 6, 2010
Tara-Nicholle got it spot on regarding the fact that California is a one-action state. The lender can either foreclose through a Trustee Sale (with no additional recourse against you) or through a Judicial Foreclosure (which allows for a deficiency judgment). Rarely, if ever, will you see a Judicial Foreclosure in California.

Regarding the junior liens, I am seeing more and more people being pursued for the balances owed (even when the loan was purchase money). The reason for this is two-fold -
1. Lenders are selling the bad debt to specialized collection companies. They are paying almost nothing for the debt, but are very aggressive in their collection efforts.
2. Private mortgage insurance companies are also pursuing their rights under the law to collect against the balances they insured.
If you are notified about such a collection action, you need to contact an attorney immediately. They will be the only ones who can tell you if you have an affirmative defense to the collection action.

My question to you is WHY ALLOW A FORECLOSURE? If you take charge of the situation and work with an experienced (let me say that again, experienced) short sale listing agent, you can then negotiate the outcome on all the junior liens. Even if they don't agree to accept payment received as payment in full, you will NOT be worse off then you are right now, AND, you then set the timeline for move out, etc. Call, if you would like to discuss your options further. There is no obligation if you choose to allow the foreclosure. However, my philosophy is Foreclosure is NOT a Choice, it is something that happens to you when you are willing to abdicate control. Find out about ALL your options and Dare to Dream.

Shel-lee Davis, CDPE, SFR, QSC
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
1 vote
Royal Real E…, , 90275
Fri Oct 8, 2010
If the lender foreclose upon the single family residence or 1-4 units, there is no deficiency judgment. Also, if lender forecloses upon the property in a non-judicial setting, there is no deficiency judgment by the lender who choose to foreclose upon the property in a non-judicial manner. However, junior lien holder may survive depending upon the timing and purpose of the loan. Especially, when the loan was taken after the purchasing of the property as Home Equity line of credit or for home improvement loan.

Its better to be proactive and take responsibility of the debts and consider all your options before letting your property be foreclosed upon by the 1st lender.

Ofcourse, if the property is investment property other than single residence and or more than 4 units , and if the lender choose to proceed with judicial foreclosure, it could recover deficiency judgment against debtor from the court.
0 votes
Sheyenne Sch…, Agent, Torrance, CA
Mon Jun 14, 2010
It depends on several factors. If this was your primary residence is one key issue. Also, did you have a second? The main way to avoid having to pay a deficiency if one of the lenders seeks one is to make sure you are INSOLVENT. This is a key term and any CPA specializing in working with short sale home sellers should know this. There are things your CPA can do to make sure you are "INSOLVENT" in the deficiency seekers eyes. Learn this term, it is crucial. Insolvency means your debts add up more than your assets. Ever heard of trying to squeeze blood from a turnip? Impossible. Get the facts. I have expert CPAs that KNOW short sale facts and tax consequences as of yesterday.
Sheyenne Schultz 310-429-4170
Short Sale/REO Specialist
Web Reference:
0 votes
Bob Movin-On, , Hartford, CT
Thu May 6, 2010
There are a lot of factors that determine the bank ability to collect on a deficiency in California, if this was your primary residence the chances are slim, if it were a second home or investment property the bank can come after you.

Good Luck
Bob Patrick
Buy a home after foreclosure expert
0 votes
Tara-Nicholle…, Agent, Alameda, CA
Wed May 5, 2010
California is a one-action state, which simply means that the foreclosing lender must choose to either sue you or foreclose outside of court, but they cannot do both.

HOWEVER, if you have:
*a second or third mortgage on the property (not the foreclosing lender, which is usually the holder of the first mortgage),
*which was not used to purchase the home or refinance funds that were used to purchase the home (like a home equity line of credit, for example),
in California, the lender on that loan or loans MAY pursue you after a foreclosure.

Most often, the "junior lender" doesn't file a lawsuit, but rather send the account to a collection agency to try to get you on a payment plan for it - especially if you don't have a big old pile of money sitting around that they could tap into via a lawsuit.
0 votes
Brad Davidson, Agent, Placentia, CA
Wed May 5, 2010
If the foreclosure was done by the trustee at the trustee sale then the answer is no. If a lender uses a trustee sale to foreclose the lender waives the right to a deficiency judgement. A deficiency judgement is only available through a judicial foreclosure. That's where the lender files a lawsuit in civil court to foreclose on the property. Even with a judicial foreclosure, purchase money loans are exempt from deficiency judgements.

Brad Davidson
Broker - 01416432
0 votes
Conrad Hodgs…, Landlord,
Wed May 5, 2010

If the property was your primary residence and have a purchase money (Non Recourse) loan you are protected under the Anti Deficiey laws in California when it goes to foreclosure.

If however you pulled money out, refinanced, or rented the property out you may be liable for deficiency.

We are not attorneys but I am pretty sure the above is correct. I advise you to also consult with your CPA about taxable consequences.
0 votes
Mike King, Agent, Los Angeles, CA
Wed May 5, 2010
I concur with Scott Aubin. You can check out this link I found for you also. If you really need to know for sure though you should of course consult with a real estate attorney.…
0 votes
Scott Aubin, , Rancho Santa Margarita, CA
Wed May 5, 2010
My understanding is it depends on whether or not the loan was a purchase loan. If the loan was a purchase loan, there should be no deficiency judgement, but if the loan is a cash out refinance or a HELOC loan you may have deficiency judgement.

Scott Aubin
The Aubin Team
Realty Executives
0 votes
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