Commercial Foreclosure Basics, Part 2 - Anti-Deficiency Difference between Judicial and Non-judicial Foreclosure

I am often asked by borrowers whether of not a lender can sue the borrower for any amount that is owed on the loan, over and above the sale price received at a private sale.  Well, there are many, "it depends."  However, in very short summary, if the lender proceeds with a NJF and the property is sold as a result, the lender cannot proceed against the borrower if there is any deficiency.  By deficiency, I mean that the property sold for less then what was owing on the secured loan.

There are many exceptions to the above rule, which include loans obtained by fraud, damages and losses incurred by the lender for causes other than a default on the loan and situations in which a 3rd party guaranteed the loan.  In the commercial context an exception might also be where the borrower has used the rents and profits in a manner not allowed by the loan and trust deed documents.

Please take care when using the above information.  As in most cases, the devil is in the details and the exceptions are what keeps lawyers employed.  A thorough analysis by your attorney should be done before you act on any of the advice contained herein.