California’s Anti-Deficiency Laws

Hi, this is Derik Lewis from Lawyers Realty Group, Southern California’s leading short sale team. I often hear people say that California is a non-deficiency state, which actually isn’t true. Lenders in California have the right to seek deficiency judgments and certain lenders are allowed to sue for unpaid balances for a period of 4 years after default.

What we do have in California though, is a set of laws called the anti-deficiency laws. What these laws do is bar lenders from seeking deficiencies and stop them from being able to sue in certain situations. These laws are all found in California’s Code of Civil Procedure (CCP).

CCP 726 is the foundation of the anti-deficiency laws. What 726 says is that a lender would need to go after a property before being able to sue the homeowner. Even if the property is worth less than what the homeowner owes, the lender still has to attempt to reclaim the property before suing the homeowner.

The most protective law that stops lenders from going after borrowers is CCP 580b, the purchase money protection. If you have a loan that was used to finance the purchase of the property, the lender is barred from seeking any kind of deficiency or from suing you, whether it’s after a short sale or foreclosure. If you refinance any of that loan, you will lose the purchase money protection. There are a few other laws that protect you if you have refinanced as well.

We have a new law, CCP 580e, which states that in a short sale, the first lienholder is not allowed to reserve the right to sue you post short sale. There is more information about this on our website, especially in the webinar. You are also always welcome to email me through our website or call us with any questions you may have about avoiding foreclosure and doing a short sale on your home.