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Q.What is the Purchase Money Rule?
A.In California, a lender is prohibited from seeking a personal monetary judgment against a homeowner who defaults on a loan which was used exclusively to buy a residential property, which the borrower lived in as a primary residence. If the foreclosure sale does not bring sufficient funds to pay off all of the borrower's “purchase money” debt, then the lender is stuck with the loss on the unpaid balance. However, if the borrower refinanced an original purchase money loan, or paid down purchase money HELOC and drew down on it again, then the lender is free to obtain a deficiency judgment against the borrower if the foreclosure sale does not bring sufficient funds to pay off all of the borrower’s debt.
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