Can I foreclose on my primary and rental home at the same time and just take the foreclosure and credit hit?

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Can I foreclose on my primary and rental home at the same time and just take the foreclosure and credit hit?

I own a primary home and a rental home in CA. Both are deep underwater. I am current in payments to both houses. Both houses have 1st and 2nd mortgage. Both 2nd mortgages are regular loans, not HELOC. I have never refinanced on either house. I have a very high credit score now and I only have a car payment but no other debts. I have no desire to keep renting the 2nd home, as it does not cover my mortgage at all and I am losing a lot of money. I have a few questions. I understand CA is a non-recourse state. I would like to walk away from both houses and just foreclose on both.

Asked on December 5, 2011 under Real Estate Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

You are mostly right--and most importantly, from what you write, you may be right for  your own situation. Deficiency judgments ("recourse") are only allowed in CA for non-purchase-money mortgages (i.e. HELOC, refinancings, and *some* second mortgages etc.) and even then only when the bank goes through the more involved judicial process of foreclosure, rather than the streamlined non-judicial process.

Purchase money mortgages--or mortgages whose proceeds were used to buy the home--do not allow the lender to seek a deficiency judgment.

So if all of your mortgages, 1st or 2nd, were purchase money mortgages, or used in the actual purchase of the home, there appears to be no deficiency judgments avaialable for them. If any of the mortgages were taken out after the home was already purchased, however, the lender(s) for those loans could seek a deficiency judgment.


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