Information on California Recourse Loan - The Bills.com Blog

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Information on California Recourse Loan

Question: I have 80/20 loan when I first bought my home, 20 being HELOC. The following year I refi this HELOC with another HELOC but with fixed rate. Does this mean this HELOC became a recourse loan in california? Thanks.

Answer: I think by refinancing only your second loan, you did turn the loan into a recourse loan. A recourse loan is one where the lendercan come after you for any excess amount of money you owe. A non-recourse loan is a loan that the bank can only look to their secured interest. In other words, they can only foreclose, they cannot get a deficiency judgment and chase you into bankruptcy collecting it. Whether a loan is recourse or non-recourse varies with the state you are in.

The big mistake homeowners make is turning a non-recourse second loan into a recourse loan by refinancing it. So how is a second mortgage also a non-recourse loan? Simple,

in an 80/20 loan, it was “purchase money” for your home. 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. In California purchase money loans made on your home (note: not second home or investment properties) are non-recourse.

The mistake comes when you refinance your second purchase money mortgage. Because it is no longer a purchase money loan, a refinance transforms it into a recourse loan. That means the lender will chase you

into bankruptcy collecting it. Or worse, they will sell it to a debt collector.

I suggest that you confirm the status of your second loan with your lender, and see if another form of refinance (to club both the loans) will make it a non-recourse loan.

For more information on mortgages, please visit our mortgage information page .

I hope the information provided helps you Find. Learn Save.

Best,
Bill
www.bills.com/blog

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