California Banks May Sue for Foreclosure Deficiency Balances

As if things aren’t bad enough, banks have asserted their right to sue borrowers whose homes have been foreclosed on for deficiency balances. States foreclosure laws vary on being either judicial or non-judicial and borrowers currently in default should check on which laws apply to them and their state. is a good place to start to check on whether or not your state is a judicial or non-judicial state or both! For example California is both a judicial and non-judicial state.
In regards to a California real estate loan, traditionally the power of sale clause is used to allow the lender to sell the foreclosed property to satisfy the balance on their outstanding loan after they have foreclosed.
The power on sale is a non-judicial foreclosure process and is most commonly used in California. There is not a right for the borrower to redeem the property (bring the loan current) after the lender has foreclosed.
Most of the time it would be a second mortgage holder who would pursue a deficiency balance judgement especially if the bank lost its entire balance in the foreclosure sale.
Borrowers need to check with a real estate attorney and tax attorney or qualified C.P.A. to check on how to protect themselves from deficiency judgements and taxes that may be owed in association with their home being foreclosed on as well as a short sale situation.

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