Second Mortgage in California

Mostly not, because they are built around the home you live in. California's homestead exemption protects the judgment debtor's principal dwelling from judgment creditors, and a rental you do not live in is not that dwelling. By statute the exemptions do not apply to the foreclosure of a deed of trust at all, so unlike some states, California has no homestead rule that voids a second lien. The Homeowner Bill of Rights is limited to owner-occupied first liens securing a loan made for personal, family or household purposes, so a business-purpose second on a rental sits outside it on both counts. One rule does reach rentals: Code of Civil Procedure section 580e bars a deficiency after a lender-approved short sale of a dwelling of up to four units with no occupancy test, but it does not apply when the borrower is a corporation, LLC or limited partnership, so how you hold title matters. This is not legal advice; your attorney or title company has the final say. See the second mortgage program page for terms.

California draws the line by definition, and business-purpose lending is still a licensed activity. The California Financing Law covers commercial loans of $5,000 or more whose proceeds are for other than personal, family or household use, and the state says it applies to commercial lending including loans secured by residential real estate; the lawful routes are a CFL license or a real estate broker license. Separately, the Residential Mortgage Lending Act defines a residential mortgage loan by the federal RESPA term, a federally related mortgage loan, which covers first or subordinate liens on 1 to 4 unit residential property made by covered lenders. RESPA itself exempts credit extended primarily for a business, commercial or agricultural purpose, but no state guidance we found says whether that carve-out carries into the California definition. That is why we ask what the funds are for and whether you live in the property. Talk to your attorney about your own structure.

The second lender gets notice, a chance to cure, and a place in line for any surplus. California deeds of trust are usually foreclosed by trustee sale under the power of sale, and at least three months must pass after the notice of default is recorded before notice of sale can be given. Civil Code section 2924b requires notice of the default to be mailed, within one month of recording it, to the holder of any later-recorded deed of trust, and notice of the sale at least 20 days before it. Under section 2924c a junior lienholder can reinstate the senior loan until five business days before the sale date in the first notice of sale. If the sale brings more than the senior debt and costs, section 2924k pays junior liens in order of priority before anything goes to the owner. Under section 2924m a trustee sale of a 1 to 4 unit property is not final at the gavel, because eligible bidders such as tenants and prospective owner-occupants get a window after the sale. Post-sale redemption exists only after a judicial foreclosure. Whether anyone can still collect a deficiency afterward turns on the facts and on California's anti-deficiency rules, so put that question to counsel. Read lien position explained before you stack debt.

No mortgage tax and no transfer tax, but a state recording fee may apply. California's documentary transfer tax law says it does not apply to any instrument in writing given to secure a debt, and the state charges no mortgage tax, so a deed of trust recorded on its own triggers neither. The transfer tax is a tax on conveyances. What a standalone second can carry is the state's $75 SB 2 Building Homes and Jobs Act fee per recorded instrument, capped at $225 per transaction per parcel. It exempts a recording tied to a transfer that pays transfer tax and a transfer of a home to an owner-occupier, and a cash-out second on a rental fits neither on its face. For the base recording charges, check the county recorder's fee schedule or ask your title company for the current charges on your documents.

Not automatically. The second-lien holder generally has to sign a resubordination agreement. We found no California statute that holds a junior lien in position when the first is refinanced. Priority on a refinance is handled by subordination agreements and by the court doctrine of equitable subrogation, under which a refinancing lender that did not actually know about an intervening deed of trust can take the priority of the liens it paid off. That doctrine protects the new first lender; it is not something a recorded second can lean on. On loans it buys, Fannie Mae requires a recorded resubordination agreement when a second stays in place through a refinance of the first, unless state law keeps the second in position. If you plan to refinance the first later, raise it before you take the second. See a second lien behind a DSCR or conventional first. This is not legal advice; your attorney or title company has the final say.

Yes, for stays of 30 days or less, even though it cannot ban renting outright. Civil Code section 4741 voids a governing-document rule that prohibits or unreasonably restricts renting a separate interest, but it lets an association enforce a rule that prohibits transient or short-term rental for 30 days or less. Units created under SB 9 must be rented for more than 30 days. The program counts short-term rentals as eligible, so check the CC&Rs and the city's own short-term rental rules before you size a second on nightly income, and test the numbers in the second mortgage calculator. City rules vary and are covered on the metro pages, not here.