Introduction to California’s one-action and antideficiency rules

I’ve received a number of questions offline about California’s one-action and antideficiency rules, and related legal rules, which come into play when lenders make and enforce real estate loans in California.  (They are quite different from the analogous legal rules in many other states, particularly those in the East; many lenders based elsewhere find them confusing at best.) So here is a brief introduction to these California laws.   I’ll follow up with more detail in later posts.   (Please note, as with all other statements in this blog, the summary below is not a not legal opinion and cannot substitute for informed legal advice regarding a specific transaction from a California lawyer.) 
 
When it comes to enforcing loans secured by California real estate, California is a “single action” state. Civil Procedure Code Section 726(a) provides in part that “[t]here can be but one form of action for the recovery of any debt or the enforcement of any right secured by a mortgage upon real property.” This “one-action” rule applies whenever a lender with a loan secured by real property collateral exercises its remedies to recover a debt or to protect its security. The purpose of the one-action rule is to protect a defaulting mortgagor from being harassed by a lot of different actions filed against it by the mortgagee.
 
California’s “one-action” statute prohibits the secured lender from pursuing any other judicial cause of action, such as suing the borrower directly, without foreclosing on the real property collateral. As a result, if a lender takes real estate collateral as security for a loan, then lender must foreclose on its real estate security first. Further, a lender can only bring one “action” against the borrower, and must use it as the primary source of repayment when collecting the loan.

A corollary to the one-action rule, the “security-first” rule (also codified in Civil Procedure Code Section 726(a)) provides that a creditor must first proceed against the security for the debt prior to trying to enforce, by judicial action or otherwise, the underlying debt. Perhaps the most notorious instance of a creditor running afoul of this prohibition is Security Pacific National Bank v. Wozab, where the creditor set off approximately $3,000 in the debtor’s accounts held by the creditor in partial satisfaction of a $1,000,000 debt without first foreclosing on the real property securing the debt. The California Supreme Court held that the creditor’s exercise of its equitable right of setoff, while it was not an “action,” violated the requirement that a creditor rely on its security before attempting to enforce the debt. As a result, the creditor in that case lost its security.

Even though California’s “one-action” rule applies to foreclosures, lenders can start both a judicial process and a nonjudicial power of sale process (also known as a “trustee’s sale”).  Simply beginning a nonjudicial foreclosure is not deemed to constitute an “action” in California.  Neither the commencement of a judicial foreclosure action, nor the filing of a notice of default which commences the nonjudicial foreclosure process, is considered an irrevocable election of remedies under the one-action rule.  A lender is deemed to have elected its remedy, and had its one action, only when a judgment has been entered if a judicial foreclosure action is completed.  A lender that completes a nonjudicial foreclosure sale is also deemed to have elected its remedies and may not seek a deficiency judgment against the borrower.  So, a lender will not be deemed to have made an election between these two foreclosure methods until one of them has been completed.

For these reasons, when enforcing the lien of a deed of trust in California, prudent lenders often begin both an action for judicial foreclosure and nonjudicial foreclosure proceedings.  Starting both offers the lender a more streamlined and reliable method of seeking the appointment of a receiver as part of the judicial foreclosure proceeding (as distinguished from seeking a receiver as an adjunct to an action for specific performance of the lender’s assignment of rents clause in its deed of trust).   It also enables the lender to maintain the threat of a possible deficiency judgment against the borrower (assuming, of course, that the loan is of a type where a deficiency judgment is allowed, and has not been made fully non-recourse by contract).

More on judicial foreclosures and deficiency judgements in the next post.

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46 Responses to “Introduction to California’s one-action and antideficiency rules”


  1. 1 Wallace August 24, 2009 at 4:24 pm

    Maura:

    In the past, lenders were somewhat deterred from pursuing judicial foreclosure (and getting deficiency judgments against personal guarantors) because of the one-year right of redemption.

    In this economy, do you think more lenders will go the judicial route, take the property, and just sit on it for a year to wait out the redemption period, on the theory that the property might not sell for a year (without a deep discount) anyway?

    Wallace

    • 2 mauraboconnor August 24, 2009 at 9:14 pm

      Dear Wallace:

      I suspect most lenders will continue to prefer to complete nonjudicial foreclosures (because they get back the property right away) UNLESS either (1) the borrower has significant personal assets justifying the longer time period, greater expense and lack of predictability about the amount of the deficiency that the lender may get in a judicial foreclosure (the “fair value hearing” offers considerable opportunities for borrowers to increase their leverage), or (2) a guaranty is in place from a guarantor that has significant personal assets, but the guaranty does not include all the needed guaranty waivers — so that the guarantor would be entitled to the “antideficiency” and “one-action” protections of borrowers under California law.

      Best regards,

      Maura

  2. 4 ca foreclosure August 25, 2009 at 10:21 pm

    Maura,

    Thank you for the great post. I always wondered how some lenders could “threaten” to go after the home owner for the deficiency judgment even though the lender has opted for a non-judicial foreclosure. It had been my understanding that this was not an option unless the lender had opted to do a judicial foreclosure. Now I understand otherwise; this is still an option until the non-judicial foreclosure process is completed

    Very informative!!

    -Heath

    • 5 mauraboconnor August 26, 2009 at 12:01 am

      Dear Heath:

      There are also some further limitations under California law on whether a lender can get a deficiency when foreclosing on a home mortgage. Specifically, Cal. Code of Civil Procedure Section 580b provides that no deficiency judgment is allowed under a deed of trust or mortgage given to the seller to secure payment of the
      balance of the purchase price of that real property, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the
      purchaser. Note that if a 1 – 4 family dwelling has been refinanced, however, then a deficiency judgment may be sought.

      Best regards,

      Maura

  3. 6 meir August 26, 2009 at 4:26 pm

    Thanks for the great insight Maura,

    Can a lender go after the borower and co-signer instead of first foreclosing, or in case of a Jr lien, after they forclosed and did not recover their loan can they go after the borower?

    Meir

    • 7 mauraboconnor August 27, 2009 at 8:34 pm

      Dear Meir:

      If the loan is secured by California real estate, the rule is lender must foreclose first, before going after the borrower and co-signer personally, per CCP Section 726. (The law is different in some other states.) There are some exceptions to this rule, which can be tricky to enforce because the precise facts of the situation determine whether the exceptions apply or not. One of the most important exceptions is that CCP Section 726 does not apply when the lender’s security is legally worthless — for example, if the real property collateral for the loan does not exist, or is not mortgageable, was not owned by the borrower when the borrower encumbered it to secure the loan, etc. In those types of situations, requiring foreclosure would be meaningless. (If the value of the property has declined to the point that the property’s value is worthless, however, Section 726 still applies.) Another important exception is for “sold out” junior lienholder’s claims: if the senior lienholder has foreclosed on its lien, the junior lien will have been wiped out, and become legally worthless. In that case, the junior lienor may sue the borrower (and any co-signer) directly on the note, subject to any antideficiency rules and any nonrecourse or limited recourse provisions in the note.

      Hope this helps clarify this complicated area of law. As with all of these issues, a borrower or lender needs to consult experienced California real estate finance counsel when analyzing a particular matter and deciding what steps to take.

      Best regards,

      Maura

    • 8 mauraboconnor November 5, 2009 at 1:40 am

      Dear Meir:

      In loans secured by California real estate, the lender must pursue either judicial foreclosure or nonjudicial foreclosure (aka trustee’s sale) in order to enforce a loan against a borrower and its co-signer/co-borrower. Such a lender expressly is not allowed to sue the borrower or a co-borrower directly on the note (although it generally may sue a guarantor directly, provided that the guarantor is a true guarantor and not a sham guarantor, and has expressly waived the one-action and antideficiency protections).

      If the holder of a junior lien encumbering California real property is foreclosed out by a senior lienholder’s foreclosure (which wipes out the junior lien), then the junior lien holder can sue the borrower and any co-borrower directly. However, if the junior lien holder foreclosed on its deed of trust judicially (before the senior lienholder did), it could pursue a deficiency (provided that a deficiency was not barred as a purchase money mortgage); or if the junior lien holder foreclosed nonjudicially, then it could not pursue a deficiency judgment pursuant to Code of Civil Procedure 580d.

      Best regards,

      Maura

  4. 9 Tony August 27, 2009 at 7:58 pm

    Thanks for this information, very helpful. What is your general opinion on lenders seeking a deficiency judgment against personal guarantors who are not the actual borrwoer (rather, their affiliated entity was the borrower that defaults, gets foreclosured on by the non-judicial forcelosure)? The guarantees now have all the anti-deficiency waivers in there so can the lender foreclose and then chase for the deficiency? What if the lender’s own bid results in taking the property but they dont feel the market value met the debt obligation – in that circumstnace can they still chase the personal guarantor for the deficiency?
    Thanks

    • 10 mauraboconnor August 27, 2009 at 8:43 pm

      Dear Tony:

      Generally, provided that the lender has a valid guaranty (not a “sham guaranty” which I’ll discuss in a later post) from a person or entity who is not the borrower, and that guaranty contains the so-called “Gradsky” or “Civil Code Section 2856” waivers, the lender should have the right to foreclose either judicially or nonjudicially on the property, then pursue the guarantors. Enforcing guaranties of this type in California is really complicated and tricky, however. This answer gives only the big picture: I’ll discuss the issues around guaranties in a later post in more detail.

      Hope this helps.

      Best regards,

      Maura

  5. 11 Ali September 19, 2009 at 3:12 pm

    What if the 2nd trust deed holder has personal guarantees with borrowers and they file notice of default which triggers first trust deed holder to also file NOD and the sale occurs and 2nd trust deed holder does not bid and is wiped out. Can they now enforce the personal guarantee against the borrowers after they elected to foreclose?

    • 12 mauraboconnor September 25, 2009 at 8:19 am

      Am on the road, so won’t be able to answer til next week, Ali; but this is a great question and I’ll post my answer then.

      Best regards,

      Maura O’Connor

  6. 13 Laurel September 30, 2009 at 8:48 pm

    Dear Maura,

    Your repsoonses have been very informative. My home was foreclosed (non-judicial),in May of this year. Both the first (a refinance) and second mortgage (a HELOC) were held by Chase. Now I am being harrassed by a collection agency for the $107,000 second mortgage as only the first was covered in the foreclosure sale. Is it legal for Chase to do this since they owned both mortgages? If it is now, what is my recourse?

    Thank You,
    Laurel

    • 14 mauraboconnor November 18, 2009 at 2:14 am

      Dear Laurel:

      There are different rules applicable to “sold out” junior lienholders/mortgagees, and I’ll write about them as I have time to do so.

      I cannot answer your specific question as that would constitute giving legal advice, which is not the purpose of this blog, and is specifically not allowed by the terms of my agreement with my firm and with GlobeSt.com. I advise you to discuss your position with a competent California real estate lawyer, who can focus on the precise facts of your case and advise you accordingly.

      Best regards,

      Maura O’Connor

  7. 15 Jerry October 5, 2009 at 7:35 am

    Dear Maura:

    What is meant by the phrase “occupied entirely or in part” by the purchaser in Section 580b? Does this mean that the purchaser must occupy the property at any time during ownership? Or, must the borrower intend to occupy the property initially? More specifically, would the anti-deficiency protection apply to a person who borrows money to purchase a single-family home or townhouse that he/she purchases initially as investment property but subsequently occupies it as a second home? Would the lender in the latter situation have the choice of pursuing the borrower for the full amount of the loan balance in a judicial proceeding?

    Many thanks.

    Jerry

  8. 16 Lisa Welsh October 21, 2009 at 10:42 am

    Maura,

    I have been working with short sales for 4 years and have been searching the internet for information about the “one action” rule and deficiency for years. I want to thank you for making it clear and easy for everyone. I do have a question.

    Regarding 1099s – Can a Recourse lender issue a 1099 as well as go after the deficiency?

    • 17 mauraboconnor November 5, 2009 at 1:31 am

      Dear Lisa:

      I am not a tax lawyer, but there may be readers who know more about this — and I invite them to chime in. My understanding is that if a lender is issuing a 1099, it’s doing so because it has agreed to a short sale (and agree to take less than the amount owed), and the borrower is receiving cancellation of some of its indebtedness (and must pay tax on that imputed income).

      However, if a lender is seeking a deficiency judgment against its borrower, it would by definition not have agreed to cancel the borrower’s indebtedness (through a short sale or otherwise), and so would not issue a 1099.

      I would want to consult a tax lawyer with all appropriate facts in hand to be sure about this.

      Anyone with superior knowledge, feel free to jump in.

      Best regards,

      Maura

  9. 18 Greg November 16, 2009 at 1:09 pm

    BofA sent unsolicited letters to customers offering to review their mortgagees for a loan modification.

    Does BofA violate any laws when they told customers, who received these letters in California seeking loan modifications, that they had to miss two or more payments to qualify for a loan modification review? BofA admitted in testimony before the U.S. House Financial Sub-Committee on Sept. 9. 2009 that they did this even though it wasn’t true and is no longer practiced.

    BofA then told these same customers, who sent in the requested loan modification documentation, that their loans were under review for modification. However, BofA pursued a non-judicial foreclosure at the same time and never actually reviewed the loans for modification, but rather took them straight to foreclosure. BofA never even started the loan modification review process even though the customers were told their loans were being reviewed for modification.

    It turns out that BofA had nowhere near enough employees working on the loan modification process. See AP story. http://www.msnbc.msn.com/id/33892101/ns/business-real_estate/

    Hard to believe no laws were violated by BofA.

  10. 19 dan December 7, 2009 at 3:28 am

    If a bank files a judicial foreclosure against a California debtor and and then wrongfully files a lis pendens on another piece of debtors real property not associated to the judicial foreclosure action, which prevents the debtor from using the real property as security to gain funds to defend the judicial foreclosure, has the bank by its lis pendence action invoked the single action remedy. Thanks for your time… dan

    • 20 mauraboconnor December 18, 2009 at 7:39 pm

      Dan, this is an interesting question, and I’ll address your hypothetical in a post as soon as I can.

      Best regards,

      Maura

  11. 21 M.M.Naim December 21, 2009 at 7:25 pm

    Dear Maura,

    When the collateral is a home in California, can a Jr. lean holder,( which bought the note at a discount, from another entity who had bought it from FDIC after the original lender was taken over FDIC), go straight after the cosigner-guarantor instead of first foreclosing or going ofter the collateral or the borrower?

    Kindest regards,

    Meir

    • 22 mauraboconnor February 23, 2010 at 6:18 am

      Dear Meir:

      If a junior lien holder bought a note secured by real property from the original lender or someone else who bought it from the original lender, that junior lien holder would typically be entitled to enforce the original loan including the original guaranty as if it were the original lender. So if the original lender could have gone after the guarantor without foreclosing first (which it would probably be able to do if the guarantor’s guaranty were NOT secured by the deed of trust, AND if the guaranty contained all the required CA Civil Code Section 2856 waivers, AND if the guarantor had NOT co-signed, or been jointly and severally liable with the borrower, under the note and other loan documents). If the guarantor had co-signed the note with the borrower, so that it was jointly and severally liable, and the note were secured by the deed of trust, then the guarantor would be entitled to the same protections under the antideficiency and one-action rules as the borrower — and the successor lender would have to enforce the guaranty through a judicial foreclosure. The facts — whether the guaranty is secured, whether the guarantor is really a co-obligor and whether the guaranty contained all waivers — are key to analyzing this sort of situation.

      Best regards,

      Maura

  12. 23 Ron Johnston January 16, 2010 at 9:04 am

    Hi,
    A question of interst to a number of lenders is this: Suppose a borrower obtained a loan secured by real property (located in California) by means of fraudulent misrepresentation. If a suit for fraud seeking damages is brought by the lender, can the lender simultaneously pursue a non-judicial foreclosure all the way to completion without violating the one – action rule? Thanks in advance for your thoughts.
    Ron

    • 24 mauraboconnor January 21, 2010 at 5:45 am

      Dear Ron:

      Without researching this (which one would have to do to be sure of the answer), a lender seeking both to foreclose on a loan secured by California real property and to bring a suit for damages caused by fraud would almost certainly be able to do so if the lender both initiated the nonjudicial foreclosure and began an action for judicial foreclosure and included the fraud counts in the latter as part of its one action. A lender has not finally elected its remedy so long as the foreclosure (either the nonjudicial or the judicial foreclosure) has not proceeded to sale, and can pursue both up to that point. Once the nonjudicial foreclosure occurs, the loan is deemed paid off by the sale of the property, and the judicial foreclosure action is mooted.

      Then the question would be whether the claim for fraud is also mooted, or whether it would stand. As noted, I have not researched this (as I am out of town on business) but think that the fraud claim might be able stand only if it sought damages OTHER THAN repayment of the loan that were caused by the fraud. It’s not immediately obvious to me what additional damages beyond the lack of repayment the lender might allege, but it could happen. (The lender can’t seek additional monies from the borrower for a shortfall in the loan amount — a deficiency — after a nonjudicial foreclosure is completed.)

      Obviously, if you are in this situation, you need to discuss this with your lawyer who should review the applicable law (which, please note, I have not done), and apply the law to the facts facing you in your case. The facts in such cases can make a big difference in how the law would work in any specific case.

      Best regards,

      Maura

  13. 25 Short sale in Ca February 3, 2010 at 12:47 am

    We got approved both 1st(indymac) and 2nd loan for SS,1st loan was a refinanced, 2nd wasn’t,they are asking 10,000 from us on escrow,and it says on the contract of the 1st loan that they will retain all their deficiency rights as provided by the note,deed of trust and security aggreement and it has to be signed by us, we talked to the negotiator that by the end of the year we will likely get a 1099.Accgd to them the deficiency rights paragraph is standard to all short sale that they approved,and they can not erase or waive it. we are very uncertain if they we still do judgement on us even we are paying 10k. Should we proceed with the sale and take the risk or should we not sign the document and let it foreclose? I need some help ASAP.Thanks

    • 26 mauraboconnor February 23, 2010 at 6:22 am

      Dear Reader:

      I am sorry, but this question is really a request for legal advice about a specific deal, and I cannot provide such advice in this column. I advise you to hire a lawyer who specializes in home loan modifications near where you live, and ask him or her to analyze your situation and give you advice tailored to your specific situation.

      Best regards,

      Maura

  14. 27 Teresa February 5, 2010 at 12:42 am

    How long can the mortgage company take to foreclose? It has been a year and they threaten that I need to purchase insurance from an affiliate as stated in the loan agreement and my credit cards are closing due to the amount of delinquent payments. Is there any way to MAKE them take the house back? I have told them I do not want it under any circumstances and still they have not foreclosed.

    Please advise me.

    • 28 mauraboconnor February 23, 2010 at 6:05 am

      Dear Teresa:

      I am not aware of any law requiring that a lender foreclose on a defaulted loan. If the lender is enforcing a loan secured by real property in California, it may only enforce the loan by foreclosing upon it. However, to the best of my knowledge, the lender cannot be pushed to move faster in its foreclosure. There’s one exception: many states, including I believe California, have “ancient mortgages” or “ancient document” rules that say a lender cannot enforce a mortgage or deed of trust if it’s older than a certain amount of years. I can’t remember off the top of my head how long that time period is, but it’s several years; and I think from your question that you are not worried about that problem.

      Best regards,

      Maura

  15. 29 jessie March 6, 2010 at 10:47 pm

    I refinanced and took out money. Now I am foreclosing. Will the lender garnish my wages to compensate for the deficiency? Please advise
    Jess

    • 30 mauraboconnor March 15, 2010 at 5:14 am

      Dear Jessie:

      This is the sort of question that doesn’t give enough facts for me to respond (for example, is this loan secured by commercial real estate or residential? Are you foreclosing or is your property being foreclosed upon?). In addition, the purpose of this blog is general education, not to give legal advice about particular problems. Unfortunately, you appear to need specific legal advice tailored to your situation. In order to get this, you need to engage a competent lawyer in your area who can talk to you about your particular issues, including specifically what has happened, and then can advise you about your options and likely outcomes.

      Best regards,

      Maura

  16. 31 Andy March 17, 2010 at 3:18 pm

    Maura, Does the “one action rule” also apply to short sales? If an individual short sells their home in California, and they have refinaced their loan at one time, would the one action rule apply or can the lender pursue the sellers for a deficiency judgement? Thank you.

  17. 32 Thomas March 19, 2010 at 11:09 pm

    Maura,

    What a great blog. I wonder if the one-action rule applies to all notes held by the same creditor? If one bank holds notes for both a first mortgage and a hard-money HELOC on a home, and decides to pursue foreclosure against the first mortgage, does the one-action rule bar the lender from taking the home through a non-judicial foreclosure proceeding on the first mortgage, and then pursuing a judicial remedy against the borrower on the HELOC note?

  18. 33 michelle May 4, 2010 at 12:28 am

    hi,
    i am wondering if a refinance, primary loan, no second or HELOC with HUD falls under the one remedy rule. some literature infers that refinances are not covered in the one remedy rule. if there is only one note, with HUD, is it covered under the one remedy rule?

    and, how do you know if a judicial foreclosure process has begun. i can clearly see that a non judicial trustee sale has begun, but i cannot find any evidence of a judicial process being started.

    thanks; great blog!

  19. 34 aldytop May 22, 2010 at 9:53 pm

    I recently came across your weblog and have been reading along. I thought I would leave my very first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I’ll keep visiting this weblog really often.

  20. 35 Rodger Heggelund June 7, 2010 at 8:21 pm

    Dear Maura,

    Does the one action rule apply to commerical properties. In my case office buildings of about 35,000 square feet with debt of about 5 million, first deeds only?

    Thank You
    Rodger

    • 36 mauraboconnor August 16, 2010 at 8:31 pm

      Dear Rodger:

      Sorry for the late answer. About 3 months ago, GlobeSt.com changed how we post our blogs to their inhouse system, and I had mistakenly thought that all queries to the blog went there — but just found out they’ve been being posted here. We’ll try to get this figured out.

      In answer to your question, yes, the one-action and antideficiency rules apply to California commercial properties, including office buildings. They apply to any obligations secured by interests in real estate, so apply both to first deeds of trust and to more junior deeds of trust.

      Thank you for your interest in the blog.

      Best regards,

      Maura

  21. 37 CATHY June 16, 2010 at 7:49 am

    We have multi family investment property in California. Property value is 2.2 Million. The first is with Chase 3Million the second is with a private seller carry back 180,000. We are current with the first and not with the second. The second has filed for judicial sale and wants court appointed receiver put in. We have a two thousand dollar negative per month. Who is responsible for that after a court appointed receiver is placed?

    Also does the second have any recourse to collect on his deficiency, why is he filing a judicial sale and not a non judicial trustee sale? I thought that the second is a non recourse loan and only secured with the property?

    • 38 mauraboconnor August 16, 2010 at 8:29 pm

      Dear Cathy:

      Sorry for the late answer. About 3 months ago, GlobeSt.com changed how we post our blogs to their inhouse system, and I had mistakenly thought that all queries to the blog went there — but just found out they’ve been being posted here. We’ll try to get this figured out.

      In the meantime, thank you for your interest in the blog. You need to consult with a lawyer in your jurisdiction who handles residential real estate.

      I generally try to answer questions if they are general enough to be of interest to the readers, within my competency, and if they are posted in the most recent blog entry or two. However, unfortunately, because the purpose of the blog is educational, explaining the law generally but not applying it to specific disputes, and because of certain ethical restrictions limiting lawyers’ activities, it is not possible for me to answer your question on the blog.

      The specific facts in your matter would determine what your rights, if any, are. The facts surrounding your dispute, as well as the paperwork surrounding your loan, would have to be carefully examined by a real estate lawyer who specializes in residential lending in order for you to receive meaningful and accurate legal advice. Unfortunately, I am not that lawyer — my experience is in commercial real estate, where different rules apply, and that is true of our firm’s real estate practice generally.

      The local bar association usually has a referral program for lawyers; if you need a referral in California, let me know and I’ll try to provide one.

      Best regards,

      Maura

  22. 39 Wayward Bear June 30, 2010 at 6:12 pm

    It has been over three months since Maura last responded — what gives?

    Someone bit off more than she could chew. Wayward Bear.

    • 40 mauraboconnor August 16, 2010 at 8:18 pm

      Dear Wayward Bear:

      Sorry for the late answer. About 3 months ago, GlobeSt.com changed how we post our blogs to their inhouse system, and I had mistakenly thought that all queries to the blog went there — but just found out they’ve been being posted here. We’ll try to get this figured out.

      In the meantime, thank you for your interest in the blog. I’ll start checking the wordpress site again, til I’m sure that we’ve worked out the final bugs in the new GlobeSt.com site.

      Best regards,

      Maura

  23. 41 Ashley July 27, 2010 at 9:21 pm

    I am also interested in short selling my home in lieu of foreclosing or bankruptcy. The lender transferred maintenance of the 1st to another company and maintains the HELOC. Can they pursue repayment of the HELOC or are both loans forgiven in the proceedings?

    • 42 mauraboconnor August 16, 2010 at 8:10 pm

      Dear Ashley:

      Sorry for the late answer. About 3 months ago, GlobeSt.com changed how we post our blogs to their inhouse system, and I had mistakenly thought that all queries to the blog went there — but just found out they’ve been being posted here. We’ll try to get this figured out.

      In the meantime, thank you for your interest in the blog. In general, unless you specifically negotiate to have the HELOC lender (or any other junior lender) give up its rights to pursue you on the HELOC or junior priority loan, the lender can do so after a foreclosure. However, you need to consult with a lawyer in your jurisdiction who handles residential real estate and can assess the specific facts of your situation, then can apply the applicable law to your matter.

      The specific facts in your matter would determine what your rights, if any, are. The facts surrounding your dispute, as well as the paperwork surrounding your loan, would have to be carefully examined by a real estate lawyer who specializes in residential lending in order for you to receive meaningful and accurate legal advice. Unfortunately, I am not that lawyer — my experience is in commercial real estate, where different rules apply, and that is true of our firm’s real estate practice generally.

      The local bar association usually has a referral program for lawyers; if you need a referral in California, let me know and I’ll try to provide one.

      Best regards,

      Maura

  24. 43 George August 11, 2010 at 4:27 am

    Hi,
    We live in California and have a 1st mortgage of $1.1 million and 2nd mortgage of $0.3 million. Our home value is $750,000 as of today. We are current on our first with B of A, but have elected to not pay the 2nd with Chase in hope that Chase will work with us on a loan modification. I’m 3 payments behind with Chase. Their collectors informed me that they will not foreclose on us, but they will pursue all actions necessary to collect including garnishing our wages. My mind is put at ease as I read this website in that the One Action rule prevents Chase from filing a lawsuit against me without first foreclosing. And they likely won’t foreclose because they don’t stand to gain anything (at least right now). First question is, am I correct in this interpretation?

    As I understand it, soon I will be placed with the loan modification group at Chase to see if I qualify for a loan mod. My husband and I can’t afford to pay the 2nd right now, but we’re not broke either. My friends tell me I probably won’t qualify for the loan mod because of my income level. To the homeowners who are ahead of me in this process… What is likely to happen? If I continue to not pay the 2nd, will they give in and modify me regardless of my income level? Has anyone been successful in severely modifying their loan down to cents on the dollar? I’m talking about a formal principal reduction with no future lien and no a forbearance/balloon payment.

    My last inquiry is regarding my 1st mortgage. Once we modify our 2nd, I was planning to approach B of A (our 1st mortgage lender) for a loan mod. What is the best way to approach this – by failing to pay? Failing to pay the first mortgage scares me so any advice would be appreciated!

    George

    Please, any advice would be helpful. We plan to see a lawyer.

    • 44 mauraboconnor August 16, 2010 at 8:05 pm

      Dear George:

      Sorry for the late answer. About 3 months ago, GlobeSt.com changed how we post our blogs to their inhouse system, and I had mistakenly thought that all queries to the blog went there — but just found out they’ve been being posted here. We’ll try to get this figured out.

      In the meantime, thank you for your interest in the blog. You need to consult with a lawyer in your jurisdiction who handles residential real estate.

      I generally try to answer questions if they are general enough to be of interest to the readers, within my competency, and if they are posted in the most recent blog entry or two. However, unfortunately, because the purpose of the blog is educational, explaining the law generally but not applying it to specific disputes, and because of certain ethical restrictions limiting lawyers’ activities, it is not possible for me to answer your question on the blog.

      The specific facts in your matter would determine what your rights, if any, are. The facts surrounding your dispute, as well as the paperwork surrounding your loan, would have to be carefully examined by a real estate lawyer who specializes in residential lending in order for you to receive meaningful and accurate legal advice. Unfortunately, I am not that lawyer — my experience is in commercial real estate, where different rules apply, and that is true of our firm’s real estate practice generally.

      The local bar association usually has a referral program for lawyers; if you need a referral in California, let me know and I’ll try to provide one.

      Best regards,

      Maura

  25. 45 Bruce August 21, 2010 at 1:28 am

    Hi Maura,

    Just so I am clear on all this stuff, if a lender chooses the non-judicial foreclosure route in CA, that then means they can take the home but can not come after us for any deficiency on the mortgage, correct? We have a recourse loan (re-financed) and this is something I have wondered about.

    What would the point be for the lender to seek judicial foreclosure vs non-judicial if the one-action rule applies in both cases?

    • 46 mauraboconnor September 3, 2010 at 3:02 am

      Dear Bruce:

      A lender may foreclose on any real property judicially, and seek a deficiency, OR nonjudicially (in which case it waives a deficiency) UNLESS the real estate loan falls into certain categories. These include a purchase money loan, which generally is a loan used to purchase a home. Lenders may ONLY foreclose nonjudicially on purchase money loans. So a loan used to buy a house would be a purchase money loan, and would only be susceptible of nonjudicial foreclosure. I do not think that a refinancing of a purchase money loan is expressly entitled to the same protection, particularly if it is for an amount in excess of the original loan, but there may be some case or argument for extending this protection to refinancing loans secured by individual residences. I don’t know for sure, as my practice focusses on commercial real estate; the law frequently provides additional protections for single family to 4 – unit residential real estate. If you are facing this issue, you should consult with a California lawyer who specializes in residential real estate.

      Best regards,

      Maura


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Attorney Advertising. This blog is a periodical publication of Maura O'Connor, a partner of Seyfarth Shaw LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have. The contents are intended for general information purposes only and represent the individual views of Maura O'Connor only. Any tax information or advice contained herein is not intended to be and cannot be used by any taxpayer to avoid tax penalties that may be imposed on the taxpayer.

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