Quote from stinkyfelix:
The answer is YES if they have not refinanced the property in any way.
In the great Socialist Republic of California, deficiency judgements are barred by California Civil Code 580b for the initial purchase of a home if the loan obtained was used to purchase the property. Even if the loan documents say "full recourse loan" it is automatically barred by California statute. You cannot sign away your statutory rights in California. The initial loan is automatically non-recourse.
The answer is No if the property is subsequently refinanced. The refi-loan would be a full recourse loan.
So to relate this to the current subprime mess, if Joe California gets 100% financing to buy a home in 2005 and thinks he can flip it for a 50% profit in 2007 while living in it, why not take the plunge?
Joe either makes a big profit or walks away from the property and can even live in it for free by not making the monthly payments until he gets foreclosed. Only in California can you get this kind of deal!
The upside is a big profit, the downside, if you can even call it a downside since Joe already had bad credit when he bought the place, is another ding on his credit report.
Traditional lenders who have operated in California for years are aware of this non-recourse law. I think alot of the folks on Wall Street who are now the proud owners of a foreclosed home in a gang ridden area on the wrong side of the tracks are going to be in for a rude surprise...
Here is the California Civil Code section:
580b. No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.
