Can a 2nd mortgage lender collect ona deficiency?
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Can a 2nd mortgage lender collect ona deficiency?
Bought a house (primary residence) in CA 6 years ago. I had 2 loans (80/20) – same bank, same time, purchase money loans, no refinance. House was foreclosed about 18 months ago. Bank 1 (senior) took the property and Bank 2 (junior) had a charge-off and transferred the account to a collection agency to “recover” the debt. This is now the third collection agency as the first 2 gave up after my cease and desist letters. This last agency replied with a copy of the note and deed of trust (they are requesting payments to be made to the order of 2nd Mortgage bank). Can they realistically pursue any viable options against me?
Asked on June 27, 2011 under Real Estate Law, California
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
California appears to give considerable protection for purchase money mortgages--mortgages used to buy homes. Unlike many other states, as long as the only mortgages were purchase money mortgages, deficiency judgments are not available; the lender's only recourse is to the home itself. Therefore, assuming that you are correct and both mortgages are purchase money mortgages, then neither a first nor a second lender can sue you for any remaining amounts due after you have defaulted and the home was foreclosed upon. Obviously, the default will affect your credit rating, but it seems as if you should be safe from being sued. If the bank disagrees and characterizes one of the loans as not a purchase money mortgage, they may try to come after you on that basis, but you'd have the chance in court to show that it was a purchase money mortgage.
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