Deficiency Judgment in California

After a Short Sale transaction is completed in the state of California, the Lender, in some ccases, may sue the Borrower for the Deficiency Judgment (the difference between the indebtedness and the fair market value). The Deficiency Judgment will not apply to every case. There are five situations in which the Lender can not proceed with the Deficiency Judgment:

1. Purchase money loan: The Borrower (homeowner) still has the original loan on the property and did not refinance the original loan since purchasing it.
2. Three-month limit: The Lender has three months to sue the Borrower, or let it go.
3. Seller’s financing: If the loan was financed by the seller, the original seller will not have a right for a Deficiency Judgment against the Borrower.
4. When the Lender will do the Trustee’s Sale (sale conducted by the trustee) instead of the Judicial Foreclosure (foreclosure which occurs in the court).
5. The Lender can not sue the Borrower for the amount bigger than the difference between the loan amount and the fair market value.

The Lender may obtain the Deficiency Judgment after the Judicial Foreclosure and/or when the loan is completely wiped out.

For example, let’s say that the Borrower obtained two loans (Trust Deeds) in order to purchase the property – one loan at $400,000, while the other at $100,000 – and then the Borrower decided to refinance the second loan in order to get a better interest rate. Later on, if the property is sold in a Short Sale for $395,000, the second loan therefore will then be completely wiped out. This will not qualify the second loan to fall under the purchase money loan exception to the Deficiency Judgment because of the refinancing. The Lender that provided the second loan may then sue the Borrower for the amount not to exceed $100,000.

You may reach me at:

Ihor Pochay
REALTOR/ SHORT SALE SPECIALIST
Tarbell, Realtors
(909) 629-6186 ext. 339
ihorpochay@hotmail.com
http://www.myrealtorihor.com/