An annoying question for lenders is whether a lender can enforce two loans to the same borrower and secured by the same property. The nagging issue is usually raised when a lender makes (1) a first loan and an additional advance to the borrower secured by the same property, (2) a first secured loan followed by a secured credit line, or (3) a first secured loan and a new secured second loan to finance other properties.
In California, there can only be “one form of action,” either a judicial foreclosure or a non-judicial foreclosure. In a judicial foreclosure, if the real property collateral is sold for less than the amount owed under the secured debt, the lender may sue for a deficiency judgment – the difference between the amount owed and the fair market value of the property. (Cal. Civ. Pro. Code § 726.); in a judicial foreclosure, the borrower has a right of redemption. In a non-judicial foreclosure, no deficiency judgment is allowed under a power of sale in a deed of trust. (Cal. Civ. Pro. Code § 580(d).); in a non-judicial foreclosure, the borrower has no right of redemption. When there is a senior deed of trust and a junior deed of trust and the senior lender sells the property by a non-judicial foreclosure and the real property collateral is sold for less than the amount owed under the total secured debt, the junior lender becomes a “sold-out junior,” and the junior lender may enforce its promissory note against the borrower in a judicial proceeding, (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2nd 35, 43-44.)