Stilwell & Associates

San Diego Deficiency Judgments

A deficiency is the difference between the fair market value of the property and the amount received, providing the amount received is less than the amount owed.

Whether the bank can pursue a deficiency judgment after a foreclosure or short sale depends in part on whether the promissory note makes the seller personally liable for the debt. Some states allow for personal liability.

Deficiency Judgments in California
The good news for California borrowers is all purchase-money loans on a one- to four-unit residential dwelling are exempt from deficiency judgments.

Hard-money loans in California -- loans taken out after the home was purchased through a refinance or second mortgage -- can be subject to a deficiency judgment under the following conditions:

•The lender forecloses under judicial proceedings (California Code Civil. Proc. § 726).
•Most lenders foreclose through a trustee's sale; however, which does not give the lender the right to pursue a deficiency judgment, with one exception (see second hard-money second mortgages below).
•A three-month time limit applies to actions for deficiency judgments under a judicial foreclosure.
•If the second mortgage is hard money and the lender has lost security for that loan through a foreclosure or short sale -- making the security for the promissory note worth nothing -- the beneficiary of that second mortgage can pursue a deficiency judgment (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (1963).
Negotiating Collection
Some hard-money lenders sell the promissory note to an investor after a foreclosure for pennies on the dollar. Then, the investor will attempt to collect the debt.

Even though a lender may have accepted, say, $1,000 for a $100,000 second mortgage through a short sale, the security for that hard-money second is released but the promissory note may not be. A short sale seller such as our reader might believe the ordeal is over, until one day he receives a phone call, asking for repayment.

•Realize that the lender most likely will negotiate for a discounted payoff.
•The lender may ask for a new promissory note to replace the old promissory note. In that event, make sure the lender sends a "paid in full" promissory note.
•If the lender has already sold the note, the discount may be greater.
•Not all hard-money promissory notes must be paid in cash. Some lenders will accept payments.
•If the lender directs payments to another entity, realize that the note may have been sold at less than its face value, and that new lender may accept an even lower amount as payment in full.
•After the note is paid in its entirety, ask the lender to return the promissory note marked "paid in full."

California Deficiency Judgment is one of the consequences of non payment of mortgage and is against borrower or debtor or defendant. This happens because the sale of the foreclosed homes does not generate enough funds that complete the mortgage payment. So it is the difference between the mortgage amount given by the lender and fair price after selling the home during foreclosure. For homeowner, this is the further financial set back after foreclosure auction or sale of the home. But normally the lending institutes do not go after foreclosure deficiency judgment in CA. The foreclosure laws must be checked to know the the details of deficiency judgment and protections available. For this professional foreclosure attorney must also be consulted.

Bank usually avoid deficiency judgment as it leads to further charges in terms of attorney, paperwork, filing a lawsuit and getting the judgment from the court. Bank needs to spend lots of time and money on this. Moreover the mortgage foreclosure happens because the homeowner does not have money to pay, so how the homeowner can pay the amount in deficiency judgment if the orders are against him or her, is the biggest question. On the other hand bank generally thinks that if the court's order will be against it then the whole money will be lost. So the bank, in most of the cases, go for the sale of the home instead of deficiency judgment in California. Moreover if the balance is not much then generally the CA deficiency judgment is avoided.

According to the California deficiency judgment law, in non-judicial foreclosure process, lender is not allowed to go for deficiency judgement filing. So to have foreclosure deficiency judgment one must, from the beginning, have the judicial foreclosure process.

In case borrower has taken FHA or VA home loans that secured then the lender has every right to sue the borrower for foreclosure deficiency judgment. In this case it does not matter whether the process has taken place through judicial or non judicial foreclosure method.

Now, in case the borrower has given the promissory note to the lender then with deed of trust then the loan is termed as “hard money” loan. In this loan cash is taken directly with repayment guarantee in the form of promissory note. Now in this case two things can happen:
Lender can sue the borrower on promissory note
Lender may follow the judicial foreclosure for the deficiency judgment
A promissory note is a promise made by the borrower to pay back the whole amount and it is on personal liability. 
 
Exemption in CA deficiency judgment

One to four units residential dwelling that has been purchased by the home loans is exempted from deficiency judgment according to California foreclosure deficiency judgment law. Therefore, in order to protect yourself further it is better to get information on deficiency judgment in California before hand so that you do not suffer further. Along with this also check the links given by Realestatezing.com for further reading.