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Q.What is a deficiency judgment?
A.When a lender forecloses on a loan the underlying property is sold to pay off that loan. When the sale price of the underlying property is not enough to cover the outstanding balance, penalties and interest owed by the borrower on the loan plus all of the costs incurred by the lender during the foreclosure process there is a deficiency. Under California's anti-deficiency laws, if the underlying loan was a "purchase money loan," a loan used to buy a residential property lived in by the borrower, the borrower cannot be sued and held personally responsible for any deficiency in the event the borrower defaults on the loan. However, if the loan was used to buy a vacation home, investment property, or to improve a property then California's anti-deficiency laws do not apply and the lender can use the judicial foreclosure process and thereafter sue the borrower for any deficiency (shortfall) between the funds received from the court sale of the property and the balance remaining on the loan.
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