Information on California Recourse Loan - The Bills.com Blog

Irefinanced my loan after 2 years (RM) to 3/27 (RM) and took $15000. out, does that make the loan recourse? how I will know if it is? Would it say in my contract?

These recourse laws vary from state to state, so yes, the best place to check would be on your contract. If the wording on the contract confuses you, I would suggest that you get on the phone with your mortgage lender to clarify the same.

In regards to the recourse HELOC, you say, "the lender will chase you into bankruptcy collecting it" Does that mean they can collect it if you do file bankruptcy on just the HELOC but not the first loan?

No, bankruptcy will protect you from creditor action. What I meant to say was that when a loan turns recoursable, the lender might pursue aggressive collection tactics that might make you consider filing for bankruptcy.

I purchased my home in 2005 with a subprime loan. In 2006 I refinanced to a fixed rate and had to pay $8000 in prepayment penalty. I added that penalty to my loan and paid the closing cost out of my pocket. Is this consider a recourse loan? I was told by a few people that this was consider a recourse loan.

Probably so. To be non-recourse, the loan needs to be a purchase money loan, meaning the first loan that you took out to buy the home. The moment you refinance any of the purchase money loans, you turn the loan to a recourse loan.

I also refinanced my second into a better rate, received no cash out proceeds. The home was lost in foreclosure. I have reviewed the note in full and see no language regarding recourse beyond foreclosure yet the lender did sale the loan to a collection agent. Wouldn't the note have listed the collection terms open to the lender?

Your note is subject to the laws of your state, unless otherwise permitted and articulated in your contract. It's possible the lender didn't bother to spell-out the recourse/no-recourse terms because they are well defined in your state, although I would find that unusual because this is such a key condition. Given that you are in foreclosure, calling your creditor and expecting accurate legal advice about this matter may be too much to ask. Either look at your state government's Web site for your recourse rules, or ask an attorney in your state who specializes in property issues.

We purchased a home in 2004, then took out a HELOC in 2006. The property is now foreclosed, located in CA. Would the HELOC be considered a recourse or non recourse in your opinion?

Under California law, a lender cannot pursue a borrower for a deficiency balance resulting from a first mortgage used to purchase a primary residence. (Cal. Code Civ. Proc. § 580b) A "purchase money" loan is one where the money went from the lender, to escrow, and then to the seller or to pay purchase closing costs. Second mortgages may or may not be recourse loans under California law. If the second mortgage was taken out at the time of sale and was used as purchase money loan then it is a non-recourse loan. However, if the second mortgage was financed after the initial purchase of the property and is on a second deed, then Section 580b does not apply. To your question, if the home equity line of credit (HELOC) was not used as a purchase money loan used to buy the property, then it is considered a recourse loan under California law.

Investment property purchase money & seconds in CA are recourse or non-recourse loans?

Cal. Code Civ. Proc. § 580b reads in part, "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." (Emphasis added.) I read 580b to limit non-recourse loans to primary residences, and not investment properties. For more analysis of this issue, see Is My HELOC a Recourse or Non-Recourse Loan in California?.

Hi Bill, i am in the process of short sale and got the approval for both banks. My primary lender Bankunited will issue a 1099C while 2ndary lender BOA will proceed with $80,000 collections besides the $18,200 they will get from this short sale. I started escrow this week. I never refinanced. How can i fight off this collection? If this is a law, why do banks still pursue deficiency? What proof do i need to show the bank that this is a non recourse loan so they will not pursue collection of deficieny?

My answer assumes the property is in California, based on the context of your question. If you are asking about a property outside of California, then disregard the following because California's rules are irrelevant to you. First, please read Is My HELOC a Recourse or Non-Recourse Loan in California? Walk through the article I mentioned to see if the mortgage in question is a a) "purchase money" loan, b) for a primary residence, c) not refinanced. Second, it is my understanding that by definition a short sale forgives the deficiency balance. If this is not so, then the lender is using its own definition of short sale. Also by definition, a short sale is a voluntary agreement in which the borrower agrees to maintain and sell the property in exchange for the creditor not foreclosing. I should not be surprised to learn that different mortgage companies are writing their own short sale rules. Third, I believe your central questions are, "Can creditors require debtors to waive their non-recourse rights?" and "Can non-recourse rights be waived legally?" I have not been able to determine if these questions have been litigated in California.