Heritage Law Group
California's anti-deficiency rule
California has a law on the books that offers some protection to certain homeowners who are facing foreclosure.
To summarize, the law protects certain homeowners in San Jose and the greater Bay Area from what is called a deficiency judgment. A deficiency judgment is otherwise the end result of some foreclosure proceedings, such as when a family owes more money on their house than the house is worth.
By way of example, if a person owes $600,000 on a house but the house only sells at auction for $500,000, then, under ordinary circumstances, the bank could pursue their former customers for the $100,000 balance. This means that the bank could, for example, seize other assets or even issue a wage garnishment.
In California, though, those who took out a mortgage to buy their homes, or to refinance their house loans, may be immune from a deficiency judgment. This means that while they may wind up losing their house, they do not have to worry about being pursued once the house has been taken and sold.
There are some exceptions to this rule. The most important exception is that the rule is not going to apply to investment property, including a rental home or even a second vacation home. In these cases, a bank can still chase a debtor for the balance owing after a foreclosure.
A short sale can still be helpful to a California homeowner, however, as it can serve as a means of avoiding or minimizing serious consequences to one's credit score. For those who do not qualify for protection from a deficiency judgment, a short sale can be best way to negotiate with a bank so as to be able to walk away from a property without having to worry about ongoing legal danger. An experienced real estate attorney can help a property owner in distress evaluate his or her options.