Will I Owe Money If I Foreclose in California

Will I Owe Money If I Foreclose in California
It depends. The answer below assumes that the loan is not for a corporation, but an individual consumer.

State of California allows for non-judicial foreclosure process. This means that the foreclosing entity instead of going through the judicial system and filing a lawsuit can choose to foreclose under the contract. Majority of foreclosures in California are done in this manner.

If a mortgage lender chooses to proceed with a non-judicial foreclosure they forfeit their right to pursue you for a deficiency. A deficiency is the difference between what is owed and the proceeds received from the sale of the property.

However, this does not apply to a creditor who is not part of the non-judicial foreclosure process. This may be the case if there is a second deed of trust (second mortgage) on the property. The second mortgage lender simply waits until the other lender completes the foreclosure process. The second mortgage lender can pursue the debtor directly or sell the debt to a third party in the business of buying and collecting on these deficiencies.

But wait. All is not lost yet.

Under California Anti-Deficiency statute if the property is owner occupied AND the loans in question are purchase money loans there is no right to deficiency. Those types of loans are known as non-recourse loans. What this means is that as long as the second mortgage was obtained in order to purchase the property, that lender cannot obtain a deficiency to satisfy the loan.

If the second is a refinanced loan, then the debtor can be pursued for the deficiency. If payment is not received, the entity can file a lawsuit, receive a judgment and proceed with all the remedies available for collecting: wage garnishments, bank levy, placing liens on other properties. One way to avoid this is to try to hammer out a settlement agreement, in other words try to settle with the entity for pennies on the dollar. Another option may be to file for bankruptcy protection. Depending on the financial situation of the debtor a successful chapter 7 should discharge the deficiency as unsecured debt. If bankruptcy is a viable option, at minimum it can be used as a bargaining tool in negotiating a settlement agreement on the deficiency.

To get information about Bankruptcy San Diego, please visit http://www.sdbankrupt.com

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