Full question:
If a lender/bank makes a non-judicial foreclosure on my real property, and at the sale gets no bidders and buys in the property itself for the balance on the loan, can it then also sue me personally on a personal guaranty I signed when I made the loan? Or has it made an election to accept the property instead of the balance due on the loan?
- Category: Real Property
- Subcategory: Foreclosure
- Date:
- State: California
Answer:
In many states, if a property is sold at auction for less than the amount owed, a lender may pursue a deficiency judgment or enforce personal guarantees. In California, the law follows a "one-action" rule under Civil Procedure Code Section 726(a), which states that there can be only one action to recover any debt secured by a mortgage on real property. This rule aims to protect borrowers from multiple legal actions by lenders.
According to this statute, a lender must first foreclose on the real property collateral before pursuing any other legal action against the borrower. If a lender conducts a non-judicial foreclosure and takes back the property, they typically cannot seek a deficiency judgment against the borrower. The lender is considered to have elected their remedy once the foreclosure is completed.
However, if the lender has a personal guaranty, California's anti-deficiency laws do not protect guarantors in the same way. In the case of Union Bank v. Gradsky, the court established that lenders cannot pursue guarantors for debts once they have foreclosed on the collateral. This is because the guarantor's position is altered after foreclosure, and they may lose their rights to recover from the borrower.
Moreover, guarantors can waive certain rights through contractual provisions. California Civil Code Section 2856 allows guarantors to waive their rights of subrogation and defenses related to the election of remedies. This means that if a guaranty includes such waivers, the lender can both foreclose on the property and pursue the guarantor for any deficiency.
In summary, if a lender completes a non-judicial foreclosure, they generally cannot sue the borrower for the remaining balance unless the guaranty includes specific waivers allowing them to do so.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.