What happens if my first home is foreclosed on after purchasing a second in the same state?

UPDATED: Nov 2, 2011

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What happens if my first home is foreclosed on after purchasing a second in the same state?

Will I face financial problems (other than bad credit and the implications thereof) if my first home is foreclosed after securing financing and closing on a second home? In CA.

Asked on November 2, 2011 under Real Estate Law, California


M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Other than the problems that you mentioned and are aware of, there may not be much else financially that can happen to you. This is because CA is what is known as a "non-recourse" state.

By way of explanation, if there is any shortfall (i.e. "deficiency") pursuant to a straight foreclosure (or "non-judicial sale"; the usual sale method in these cases), then in some states a lender can sue the borrower to recover the difference between the amount of the mortgage/deed of trust still owed and the price for which the home is sold (plus interest, fees, etc). This is the lender's recourse. However, in a non-recourse state a lender cannot pursue a borrower for such a deficiency.

In CA, there are some exceptions to non-recourse aspect of financing. For one, if the money that you borrowed from the bank was to re-finance (as opposed to borrowing to purchase the property) you can be held liable for the deficiency. Also, if your property is sold pursuant to a judicial foreclosure (the less common method of sale in such cases), then you can also be held responsible for any deficiency. You also bear liability for a deficiency if the property is not an owner occupied residence.

This is just a most general breakdown. You should consult directly with a real estate attorney or an accountant to cove over your specific situation.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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