There are two types of foreclosure in California: Judicial and Nonjudicial Foreclosure. The two are very different in procedure and remedies available to mortgage lenders as well as protection available to borrower.
What is Judicial Foreclosure?
Judicial Foreclosure is administered by state courts. This type of foreclosure occurs less often in residential foreclosures because it is very costly and time consuming.
Deficiency judgments are allowed when a mortgage lender pursue a judicial foreclosure. Within 3 months of the judicial foreclosure, the mortgage lender must file an application for the deficiency. The judge will hold a hearing to determine the fair market value of the real estate. Under CCP 726(b), the deficiency judgment is limited to the lesser of the amount owed that exceeds the fair market value of the real estate at the time of foreclosure or the amount owed that exceeds the sale price of the real estate at the foreclosure.
However, borrower are protected under CCP 580(b), which excludes the foreclosing lenders from collecting deficiency judgments in the following cases:
1. the mortgage was used to purchase a 1-4 unit dwelling that is owner-occupied (aka purchase money for 1-4 unit residence)
2. the loan was seller-financed (aka seller carry paper, seller carry back)
What is Nonjudicial Foreclosure?
Nonjudicial Foreclosure is administered by trustee and has no court supervision. This is common in residential foreclosures because it is cost and time effective. When you took a mortgage to purchase a home in California most likely you signed a promissory note and a deed of trust. The deed of trust gives the lender a security interest in the real estate and typically authorizes the lender to foreclose on the real estate upon default of the promissory note without court supervision and in accordance to state law.
Under California Code of Civil Procedure section 580d, a mortgage lender cannot get deficiency judgment after a nonjudicial foreclosure in the state of California. Since most residential foreclosures are nonjudicial foreclosure, borrower need not worry about a deficiency judgment from the foreclosed lender. However, the lender of the second mortgage and equity line of credit can sue the borrower for the balance of the debt after the house is foreclosed by the first lender, assuming that they are different lenders.
It does not matter whether you live in Sacramento, west of Davis or Marysville, east of Roseville or Rocklin, north of Benicia or Vallejo, or south of Tracy or Modesto, California, CCP 580 limitation on deficiency judgment applies to all mortgages or loans securing real estates in California.
Any material on this website is meant to be informational because it is too general to be taken as legal advice. Every case is unique and requires a thorough analysis by an experienced Bankruptcy Attorney. Muoi Chea is an experienced Bankruptcy Attorney with Offices in Sacramento, Stockton, and Fairfield, California to provide debt relief to residents of Northern and Central California.
Foreclosure is a serious matter and consultation with a Bankruptcy Attorney should not be delayed. Delay will only limit you options to stopping a foreclosure.