It’s terrible to lose your house to foreclosure. But at least it’s a relief to put your biggest financial headache behind you, right? Not always. Depending on the specific situation, you may still be on the hook if there is a difference between what you owed on your mortgage and what the bank could sell it for at auction. If you are facing a foreclosure, it is best to first consult with an experienced attorney.
Stockton bankruptcy and foreclosure attorney Gurjit Srai serves communities across the Central Valley. He has helped protect many individuals from creditors even after losing their homes to foreclosure. Our legal team will do everything possible to allow you to make a fresh start. For more information or to learn how we can help you achieve your financial goals, contact the Srai Law Office.
Can I Lose My Home and Still Owe Money?
In some states, a homeowner can still owe their mortgage lender money after losing their home to a foreclosure. This is called a deficiency. In most residential foreclosures in California, the foreclosing lender cannot sue the homeowner for a deficiency judgment. However, there are some exceptions.
In order to avoid facing a deficiency judgment, it is best to consult with an experienced Central Valley bankruptcy and foreclosure attorney. Our legal team is dedicated to providing the best legal representation to homeowners facing foreclosure of their home.
Deficiency After Foreclosure
When a mortgage lender forecloses on your home, the total debt that you owe the lender will most often exceed the foreclosure sale price. The difference between this sale price and your total debt is called a “deficiency.” In most states, the lender can file a lawsuit against you to recover the deficiency. This is not always the case under California law – depending on the type of foreclosure and the specific type of loan you had on your home.
Judicial v. Non-Judicial Foreclosure
Foreclosure under California law can be either judicial or non-judicial. Our experienced Stockton bankruptcy and foreclosure attorneys can explain each in more detail. However, below is a brief summary of each type of foreclosure.
Deficiency After Non-Judicial Foreclosure
The majority of residential foreclosures are nonjudicial. This means that homeowners going through a nonjudicial foreclosure will not have to worry about the lender going after them for a deficiency judgment. However, this may not be the case if you have a second mortgage, third mortgage, or a home equity line of credit (HELOC) – often referred to as junior lien holders.
When a senior mortgage holder forecloses, the junior lien holders are also foreclosed upon, along with their security interest in the house. In such cases, the junior lienholder is sold out. These lenders have the opportunity to sue you personally on their promissory note. In other words, you may face a lawsuit for the deficiency judgment.
If the lender on your property pursues a judicial foreclosure, the lender may come after you for a deficiency judgment. The lender must file an application with the court within three months of foreclosing on your home. The judge will then hold a fair value hearing to decide the fair value of your house. The deficiency judgment will be limited to the lesser of:
- The amount of your debt that is greater than the fair value of your house at the time it was foreclosed upon; or
- The amount of the your debt that is greater than the sale price of your house at the time it was foreclosed upon.
A deficiency judgment will not be allowed after a judicial foreclosure in cases where the loan was:
- Used to buy a 1 to 4 unit property that you personally lived at (a “purchase-money loan”)
- Your home was financed by the seller (known as “seller carry-back”), or
- A refinance of your purchase-money loan that was executed on or after January 1, 2013, except to the extent that new principal was advanced that was not applied to the purchase-money loan.
Central Valley bankruptcy attorney Gurjit Srai is committed to providing the very best legal representation for any individual facing foreclosure and possibly bankruptcy. Our legal team provides compassionate legal help and guidance that will help you through this difficult time.
California’s One Action Rule
Under California Code of Civil Procedure Section 726(a), lenders are only allowed to pursue one form of action to recover on their promissory note. This means that a lender is allowed to do only one of the following:
- Conduct a nonjudicial foreclosure sale (also known as a trustee’s sale)
- Judicially foreclose on a property, OR
- Sue the homeowner on the promissory note for the balance of the debt.
This one action rule seemingly allows a mortgage lender to the homeowner, personally instead of foreclosing on your house. However, courts have interpreted the rule to mean that the lender must first go after your house. This is called the “security first rule.” This means that courts require lenders to foreclose on your house as the first method of collection of their debt.
Using Chapter 7 Bankruptcy to Stop the Foreclosure Process
Chapter 7 bankruptcy can help stop the foreclosure process. Specifically, once you file for bankruptcy relief, an automatic stay goes into effect. This automatic stay prohibits any creditor from taking action against you without prior court approval. In turn, the automatic stay will prevent a foreclosure of your house unless the lender seeks court approval to continue the foreclosure process.
The bankruptcy legal team at the Srai Law Office is experienced in helping homeowners who are facing foreclosure. We will look at the specific facts of your case to determine if filing bankruptcy can help save your home from foreclosure.
Contact an Experienced Bankruptcy Attorney
Bankruptcy and foreclosure issues can be complicated in California. An experienced bankruptcy attorney can make sure that your legal rights are well protected. After a foreclosure proceeding is initiated or completed, you should immediately contact the legal team at the Srai Law Office. We know that losing your home to foreclosure can take a big toll on your life and the lives of your loved ones. We will provide you with options tailored to the specific facts of your case.
For more information or to schedule a complimentary consultation with one of our Stockton bankruptcy and foreclosure attorneys, please call us at (209) 323-5558, or complete our online form.