California's anti-deficiency laws were written to prevent: (1) multiplicity of actions; (2) overvaluation of the security; (3) worsening an economic recession by holding debtors personally liable after losing their homes; and (4) allowing creditors to low-ball bids at the foreclosure sale to acquire property below market value and then go after the borrower for money.
Such laws bar deficiency actions for purchase money loans on a primary residence and also bar deficiency judgments after a non-judicial foreclosure. Such laws mean that whether a primary residence (that has not been refinanced) is lost to trustee's sale or non-judicial foreclosure, all a lender can do is foreclose on that home.
Furthermore, California's "security first" rule requires a lender to go after the security (the home) first, that is, before going after the borrower for money, a lender should foreclose. In certain circumstances, foreclosure on the security is a lender's exclusive remedy, and no deficiency judgment can be obtained afterward.
While many primary homeowners have no worries about deficiency judgments, those who refinanced, have second mortgages, own investment property, or own commercial real estate may have reason to fear personal liability. The anti-deficiency statutes may not be applicable to these property owners, because the lender may have the ability to sue the borrower in court for repayment of the loan amount or any portion thereof that was not recovered through foreclosure.
Fransen & Molinaro, LLP has been receiving more and more calls from people who lost real estate to foreclosure or short sale and now face collection actions from the lender for money. When we meet with these people, we are able to determine whether such a debt is collectable, and if so offer advice on how to handle collection efforts. If such a debt is not legally owed, we can represent that borrower and let the lender know that any further collection actions will be met with legal action under the state and federal debt collection laws. If such a debt is collectable, we will offer advice and representation through bankruptcy, debt settlement, or litigation defense.
In closing, one point that is important to take away from this article is that legal advice and representation with regard to liability for deficiency after foreclosure is better when obtained well in advance of the foreclosure. The reason to seek legal help prior to foreclosure is that, negotiating down a legally owed debt or defending a valid lawsuit is much more difficult than taking preemptive steps to avoid the debt. For example, under some circumstances the short sale process may avoid deficiency actions.
If you are faced with hundreds of thousands of dollars in real estate debt, paying for an hour of time to discuss your rights and liabilities with a Fransen & Molinaro, LLP mortgage attorney is worth the time and expense.
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