California Deficiency Judgment Law

Foreclosures in California can be conducted both judicially and non-judicially.  Non-judicial foreclosure is the most common type of foreclosure in California.  A deficiency is created when a lender forecloses on a property and receives less than what was owed on the property.  A deficiency judgment is created when a lender sues and gets a judgment on the amount still owed on the loan after the foreclosure.  California has the following restrictions on obtaining a deficiency judgment:

  • No deficiency judgment on non-judicial foreclosures (power of sale) (California Civil Procedure Code Section 580d);
  • No deficiency judgment on judicial foreclosures if the home is four or fewer units and was a purchase money loan (the loan paid for the initial purchase of the property) (California Civil Procedure Code Section 580b); 
  • A deficiency judgment is limited to the lesser of 1) the sale price at the foreclosure minus the amount owed (including costs); or the fair market value of the property minus the amount owed (including costs) (California Civil Procedure Code Section 580a); and
  • No deficiency judgment after a short sale (California Civil Procedure Code Section 580e).

Regarding the next-to-last bullet point, in a situation where $100,000 was owed on the property when foreclosed upon, the property sold at foreclosure for $70,000, and the property was actually worth $90,000, a mortgage company could only seek a $10,000 deficiency (the amount owed minus the fair market value) even though it actually lost $30,000 (the amount owed minus the foreclosure sale price).

What the fair market value of a property is can be difficult to determine and the homeowner and the mortgage company will likely disagree as to that value.  If you live in California and have questions about whether your particular situation might give rise to a deficiency judgment, speak to an attorney in your area for specific guidance.  Or continue searching this site for potential foreclosure alternatives.  

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