Is California a "non-deficiency" State and what are the Protective Laws for Homeowners?

Hi, this is Derik Lewis with Lawyers Realty Group, one of Southern California’s leading short sale teams. I often hear people say that California is a "non-deficiency" state and that is not necessarily true. Lenders in California have the right to seek deficiency judgments and in fact certain lenders are allowed to sue for unpaid balances for a period of four years after default. What we do have in California is a series of very protective laws and they are called the anti-deficiency laws and what they basically do is in certain situations they bar lenders from seeking deficiencies and stops them from being able to sue. These laws are found in California’s code of civil procedure and that’s CCP for short. Essentially what CCP726 says is that a lender would need to go after the property before they could sue you on the note.

The most protective law that stops lenders from going after borrowers is CCP580B. This is called the purchase money protection. If you have a loan or loans that were used to finance the purchase of the property that lender or either lender is barred from seeking a deficiency or suing you whether it’s after a short sale, foreclosure or otherwise. You have to be careful because if you refinanced any of that you will lose the purchase money protections and you will be subject to a potential lawsuit or a deficiency judgment. The next best protection is if you have one loan and you refinanced that loan and if that lender forecloses, non-judicially then CCP 580D bars them from seeking a deficiency against you. The problem with that scenario is if you had two loans, a first and a second, and they were both refinanced loans, if the first were to foreclose, they would be barred under 580D, but they would wipe out the lien on the second mortgage. That doesn’t mean the debt is wiped out. That second would be able to come after you and sue you for up to four years after the default. This is when we would suggest the possibility of a short sale.

We have a new law, 580E and basically that says in a short sale, the first lien holder is not allowed to reserve the right to sue you post short sale. So if they have approved a short sale and it’s one loan only, that one lender is barred from seeking a deficiency. Again, I’m Derik Lewis with Lawyers Realty Group, one of Southern California’s leading short sale teams and we are here to help answer any questions you may have. Please give us a call today. Our website is www.LawyersRealtyGroup.com. Remember, your lender has a lawyer, you should too.