California Statutes that Govern Deficiency Judgments in Foreclosure Sales

Generally speaking, people who have had their homes foreclosed on anticipate their credit will have a lower rating and that they will face other challenges.  However, what most people never anticipate is that mortgage lenders can file a lawsuit and obtain a deficiency judgment against them. Deficiency judgments are defined as the difference between the amount that a homeowner owed a lender and the amount the foreclosed property was sold for at auction.

Foreclosure processing

While typically California foreclosures are handled outside of court, there are specific instances where they are done via court proceedings. One of these cases is when the borrower files a cross-complaint against the lender. These proceedings are becoming more common since the California Foreclosure Prevention Act (CFPA) passed in January of 2011. This process was to help homeowners who were facing challenges specifically associated with property value drops that occurred during the housing collapse.

Non-judicial foreclosures

In general, California purchase mortgages contain a right of sale clause. These clauses, which are contained in the primary mortgage documents, allow a lender to foreclose on a home provided that specific (and stringent) notifications are met. The mortgage purchase documents also allow a lender to file suit for deficiencies that may be incurred. Deficiency judgments are only during a non-judicial foreclosure or through judicial foreclosures that are for purchase mortgage funds only.

When sued for a deficiency

When a homeowner is sued for a deficiency judgment the judgment carries a 10 year statute of limitations. This means the lender may take any steps to collect a judgment for up to 10 years. In addition, these judgments may be reviewed by the court and if approved, may be extended for an additional 10 years.  Homeowner’s who have forced the lender to undertake the judicial foreclosure process may be exempt from a judgment.

When a homeowner is facing foreclosure, they may also be victims of foreclosure scams. The California legislature has provided specific laws that are clearly explained in section 2945-2945.11 of the California Civil Code. This section specifically deals with foreclosure specialists who may claim to help a California homeowner avoid foreclosure or avoid deficiency judgments in foreclosure sales. It is imperative that if a homeowner is facing foreclosure in California that they understand their rights and the laws that are there to protect them. Understanding the California statutes that govern deficiency judgments in foreclosure sales is crucial.