Information on California’s Anti-Deficiency Laws

Hi, this is Derik Lewis with Lawyers Realty Group and we are Southern California’s leading short sale team. I often here that California is a non-deficiency state, and that’s not really 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 four years after default. What we do have in California are the anti-deficiency laws. They bar lenders from seeking deficiencies. They really start with CCP 726 it’s the foundation of the anti-deficiency laws. 726 says that a lender would need to go after a property before the lender could sue you on the note.

The most protective law that stops lenders from going after borrowers is CCP 580 B, and that’s called the purchase money protection. If you have a loan or two loans, that were used to finance the purchase of the property, that lender is barred from seeking any kind of deficiency or suing you whether it’s after a short sale or foreclosure, or otherwise. If you’ve refinanced any of that, it will lose the purchase money protection and you will be subjected to potentially a lawsuit or a deficiency judgment.

The next best protection is if you had one loan and you refinanced that one loan, if that lender forecloses non-judicially then CCP 580 D bars them from seeking a deficiency against you. The problem with that scenario is that if you had two loans, a first and a second, and they were both refinanced, if the first were to foreclose, they would be barred under 580 D, but they would wipe out the lien of the second mortgage. That doesn’t mean the debt is wiped out. In that situation, that second mortgage is allowed to come after you and sue for up to four years after the default to seek breach of contract. That’s a situation where we highly recommend seeking out the possibility of a short sale. You’ll be able to negotiate with that second lien holder to take something now. We would try to get a waiver of deficiencies in that short sale. Those are the most protective of the anti-deficiency laws in California.

We also have a new law in California, the 580 E. Basically that says in a short sale, the first lien holder is not allowed to reserve the right to sue you post short sale. It’s a narrow protection, but we’re glad to have it.

There’s more information on our website. We also have some blog posts, and you can look at those to get some answers. You can also send me direct questions through the website. I answer those personally and I always look forward to seeing those and helping you out if I can. Visit our website, lawyersrealtygroup.com, where we are Southern California’s leading short sale team. Remember, your lender has a lawyer, and you should too.