Most people think that their liability is limited by the security interest and if property is foreclosed they are not liable. This articles intends to clarify the (mis)understanding. The answer is- depends. It is not a lawyer like answer. The answer really depends on whether the loan the lender had given on the property being foreclosed was a purchase money loan or a refinance loan.

If the loan the lender had given against the property was a purchase money loan, the anti-deficiency laws prevent the lender from being able to file a lawsuit for the deficiency.

However, if the loan the lender had given against the property was a refinance loan, the anti-deficiency laws allow the lender to file a lawsuit for the deficiency.

The logic is that in a refinanced loan, the borrower was able to find better loan terms or perhaps took the equity out and used it to his or her benefit. So, there is a presumption of added benefit thus allowing lenders to recover the deficiency amount.