Homeowner Liability After Foreclosure
Foreclosure has many harsh realities. Even if you lose your home through foreclosure, you may still be personally responsible for the difference between your mortgage loan balance and what your property is worth. The difference owed to your lender is called a deficiency judgement. NOTE: California's anti-deficiency rules may protect you from personal liability, but it depends on your particular circumstances.
Determining whether California's anti-deficiency protections apply to your situation can get complicated. But it is a bid deal. If your lender obtains a deficiency judgement against you, you will be legally obligated to pay that amount of money. If you don't pay your lender may enforce the judgement by, among other things, garnish your wages, levy your bank account, and attach judgement liens against any real property you may own. Considering your personal liability after foreclosure is also critical when weighing the pros and cons of foreclosure versus other options such as short selling your property, getting a loan modification, or filing bankruptcy.
Here are some basic explanations for some of the major anti-deficiency protections, as well as situations where protections do not apply:
| Protections Against Personal Liability | Situations Where Protections Do Not Apply |
|---|---|
| You may be protected against a deficiency judgement if you fall with any of the circumstances below. However, you may not be protected if you also fall within any of the situations in the Section to the right. Trustee's Sale: You are generally protected against a deficiency judgement from your lender if that lender elects to foreclose by a trustee's sale. California has two types of foreclosures - judicial foreclosure through a civil lawsuit and a non-judicial foreclosure using a trustee's sale. Most lenders in California opt to foreclose by a trustee sale. Purchase Money Loan: You are generally protected against a deficiency judgement if your lender foreclosures on a mortgage loan that you originally obtained to purchase an owner-occupied dwelling of not more than four units. You may not be protected if you refinanced the purchase money loan. Seller Financing: You are generally protected against a deficiency judgement for seller financing. Short Sale: If you sell your property in a short sale transaction, you can protect yourself from personal liability (even for a wiped-out junior lender) by successfully negotiating for your lender to accept a loan payoff for less than what is owed and to give you a written release from any personal liability for the shortfall. |
You may not be protected against personal liability under the following circumstances: Wiped Out Junior Lender: If you have two mortgages and the senior lender forecloses by a trustee's sale, you may not be protected against a deficiency judgement brought by an unpaid junior lender whose security interest was wiped out by the foreclosure. Loan Fraud: If you made misrepresentations to your lender (e.g., overstated your income on your original loan application), you may be personally liable for loan fraud regardless of the anti-deficiency protections. Bad Faith Waste: If you intentionally damage or destroy the property by action or inaction, you may be personally liable for committing bad faith waste, regardless of the anti-deficiency protections. FHA and VA Loans: If you have a loan insured or guaranteed by the Federal Housing Authority (FHA) or the Veteran's Administration (VA), you may be personally liable regardless of the anti-deficiency protections. Federal law governing FHA and VA loans may override California's anti-deficiency rules |
Helpful Links
If You Decide To Sell...
No one in our area does more to market homes for sale in our area. Take a look at our marketing and compare what we do to other agents. More exposure can mean more buyers. More buyers can lead to more offers, higher prices, better deals, and faster closings.
(707) 853-4864