Typically, a California foreclosure is considered the highlight of financial trouble with a bank when it comes to matters of housing. The foreclosure itself is a long, trying process and after it ends, most people think their dealings with the lender are over.
Sometimes, that's not quite true. If the property was sold in a public foreclosure sale and did not sell for enough money to cover the outstanding balance on the loan, the lender may have the option to seek a deficiency judgment against the borrower.
What is a Deficiency Judgment?
A deficiency judgment is a motion that may be filed by a lender to recoup its losses in selling property in a foreclosure sale from the borrower who used to pay on the loan for eventual ownership of the property. Success in obtaining a deficiency judgment depends on the type of loan involved as well as the selling price of the property in the foreclosure sale.
Obtaining a Deficiency Judgment in California
Getting deficiency judgments: California. These are very limited. California law is very favorable to borrowers in this situation.
California is a state that follows the title theory, meaning that property secured by a loan is held in trust until the loan is fully paid off. Most foreclosures are non-judicial, meaning the court is not involved in this remedy.
In addition, California law contains a “one action rule.” This means that if a lender pursues a non-judicial foreclosure, it may not engage in a second action such as a motion to recover a deficiency judgment. Deficiency judgments are not allowed in California for any property subject to a non-judicial foreclosure.
Judicial foreclosures are only allowed in California if the deed of trust or mortgage paperwork does not have any language pertaining to the power of sale. The power of sale language authorizes the lender to engage in foreclosure proceedings against the borrower.
Because of these strict legal requirements, California law does not allow deficiency judgments unless:
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A judicial foreclosure took place; and
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There is no redemption period
Furthermore, deficiency judgments in California are limited to the difference between the foreclosure sale price and the fair market value of the property.
Getting Legal Counsel
This article is merely a general guide, not a substitute for the advice of a licensed California foreclosure attorney. A licensed California attorney can provide you specific information and guidance if you are dealing with a foreclosure situation.
