Real Estate Law
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Both Florida and Hawaii permit lenders to seek deficiency judgments against the borrower in the event of a default, foreclosure and deficiency in the judicial foreclosure sale. This means that if the properties sell for less than the loan amount at a judicial foreclosure sale then the bank will be able to obtain a civil judgment against you for the remaining amount. Short sales are probably a better option for you since you will be able to control the amount of loss sustained (to some degree) and often you can work out a lesser payoff amount with the bank that will prevent judgments, garnishments and further lien filings.
If you do convince the bank to forgive a portion of the mortgage amount on either property, make sure to consult a tax attorney about the income tax implications of the loan forgiveness or partial forgiveness.
Please reply if I can help further.
Lenders may not pursue deficiency judgments in California if the property is sold through a non-judicial foreclosure OR if the loan is the original purchase money loan taken when the house was purchased. The property must be a one to four unit property.
California Code of Civil Procedure § 580b provides in pertinent part:
No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust, or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, 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.
If the above standards do not apply then the lender may pursue a deficiency just as in Hawaii and Florida. However, since California does have a complicated right of redemption many lenders forego the deficiency option.
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