Facing foreclosure on a Los Angeles home often raises a crucial question: “If my house is foreclosed, do I still owe the bank?” The answer depends on numerous factors, including the type of loan, California’s laws, and whether the lender pursues further collection efforts after the foreclosure sale. At Shapero Law Firm, we assist California homeowners in understanding their rights and options during foreclosure, empowering them to make informed decisions and protect their financial future.
Foreclosure is a legal process allowing lenders to repossess a home when the homeowner defaults on mortgage payments. In California, it can be either judicial or non-judicial, and each process affects homeowner rights and liabilities differently.
Most California foreclosures are non-judicial, a faster, less costly process. Judicial foreclosures, while less common, are used in some instances and involve the court system.
For judicial foreclosure, the lender sues the homeowner in court, and if they win, the property is sold at auction to cover the outstanding debt. If the sale doesn’t cover the full amount owed, the lender may seek a deficiency judgment to recover the remaining balance.
Non-judicial foreclosure skips the court process, following procedures in the mortgage deed of trust. It’s faster, less expensive, and generally prevents lenders from pursuing deficiency judgments, meaning they cannot claim any remaining balance if the sale price is less than the mortgage debt.
It is a court order that requires a homeowner to pay the remaining balance on a mortgage if the foreclosure sale does not generate enough to cover the entire loan amount. For example, if you owe $400,000 on your mortgage but your home sells for $350,000 in foreclosure, the remaining $50,000 could potentially be the subject of a deficiency judgment. Whether or not you’re liable for this amount depends on California’s anti-deficiency laws and the type of foreclosure process involved.
If a lender obtains a deficiency judgment, they can use various methods to collect the outstanding amount, including garnishing wages or placing a lien on other assets. However, California has strict limitations on when and how they can pursue these judgments, particularly in the case of primary residences and non-judicial foreclosures.
In the state, anti-deficiency laws protect homeowners from deficiency judgments in most non-judicial foreclosures and for primary residence purchase loans. Nonetheless, these protections don’t typically apply to refinancing loans or second mortgages, leaving borrowers at risk for deficiency judgments in those cases.
California has specific laws governing deficiency judgments, focusing on protecting homeowners from additional financial burdens after foreclosure. Still, there are important exceptions and limitations to be aware of.
Yes, the state’s law limits deficiency judgments based on specific criteria, such as whether the loan was a purchase-money mortgage or if the foreclosure was judicial or non-judicial. Generally, if your foreclosure is non-judicial, the lender cannot pursue a deficiency judgment, regardless of how much remains unpaid after the foreclosure sale. This means that if your loan falls under California’s anti-deficiency protections, you’re not going to owe any additional money to the bank after the foreclosure sale.
Facing a potential deficiency judgment after foreclosure can be daunting, but various options exist to help limit liability.
One approach is a short sale—selling the property for less than the outstanding mortgage balance. In some circumstances, lenders may accept the sale proceeds as full repayment, releasing the borrower from further liability. Another option is a deed in lieu of foreclosure, where ownership of the property is voluntarily transferred back to the lender. This can also remove the risk of a deficiency judgment, though terms vary by lender.
Negotiating a payment plan or loan modification may be an option for those struggling with mortgage payments. Many lenders are open to working with homeowners to develop a plan to catch up on missed payments over time, potentially avoiding foreclosure altogether.
Bankruptcy can provide further protection against deficiency judgments. A Chapter 7 bankruptcy may discharge any remaining mortgage debt after foreclosure, while a Chapter 13 bankruptcy can establish a manageable repayment plan. Consulting a qualified attorney can help determine whether bankruptcy is a suitable option for your case.
Are you facing foreclosure in Los Angeles? Shapero Law Firm can help. Our experienced attorneys understand California foreclosure laws and provide guidance on options to avoid deficiency judgments. Call (415) 273-8015 to schedule a consultation and make informed decisions about your financial future.
With over a decade of litigation experience, Attorney Sarah Shapero, founder of Shapero Law Firm, has secured seven-figure jury trial wins and saved countless homes from foreclosure. A Super Lawyer and Lawyer of Distinction, she brings expertise in foreclosure, employment, and bankruptcy law, practicing in California and federal courts.
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This page has been written, edited, and reviewed by a team of legal writers following our comprehensive editorial guidelines. This page was approved by Founding Partner, Sarah Shapero who has more than 10 years of legal experience as a real estate attorney.
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