California deficiency judgement..how does it affect you

By
Real Estate Agent with Coldwell Banker C&C Properties

California deficiency judgment..how does it affect you or does it?

First, let's define Deficiency Judgment.

A deficiency is the difference between the principal balance due and the amount received, providing the amount received is less than the amount owed.

Whether the bank can pursue a deficiency judgment after a foreclosure or short sale depends in part on whether the promissory note makes the seller personally liable for the debt. Some states allow for personal liability. In California, you're off the hook...let us explain:

California borrowers on a one- to four-unit residential dwelling are exempt from deficiency judgments (applicable to all purchase-money loans).

HOWEVER...

If you took on a loan after the home was purchased either through a refinance or second mortgage, then you may be subject to a deficiency judgment under the following conditions (via California Association of Realtors):

The lender forecloses under judicial proceedings (California Code Civil. Proc. § 726).

Most lenders foreclose through a trustee's sale; however, which does not give the lender the right to pursue a deficiency judgment.

A three-month time limit applies to actions for deficiency judgments under a judicial foreclosure.

If the second mortgage is hard money and the lender has lost security for that loan through a foreclosure or short sale -- making the security for the promissory note worth nothing -- the beneficiary of that second mortgage can pursue a deficiency judgment (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (1963)

Effective Jan. 1, 2011, offers deficiency protection to California short sale sellers if the loan is in first position. It does not apply to foreclosures.

Disclaimer: We are not licensed to give legal advice, we provide this information for general information purposes. If you desire legal advice or more information, please contact a real estate lawyer or you may contact us directly for a referral.

 

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