Is My HELOC a Recourse or Non-Recourse Loan in California?

My first mortgage is a non-recourse loan, but what about my HELOC? How does the Mortgage Forgiveness Debt Relief Act help me?

In 2005, I bought my house in California. I have two mortgages 80/20. First one (80% = $335,200) with Aurora loan services provided by Freddie Mac AND the second loan (20%= $83,800) which is called HELOC from Wells Fargo. I have not done any refinancing or modification to either and was regular in payments until January 2009 and started falling behind in my payments. I am working with the first mortgage for a short sale of my home. My concerns are, will the lenders chase me after a short sale process or in worst case after foreclosure? Are these non-recourse loans? Also, I heard about the "Mortgage Forgiveness Debt Relief Act," which is applicable till 2012. What if the foreclosure happens this year and bank couldn't sell the house until 2012? Does the "Mortgage Forgiveness Debt Relief Act" help me? Or does this rule look at the date which the actual foreclosure happened (not the date which the bank was able to resell the property?

Read full question
Bill's Answer
4.5
/5.0
(8 Votes)
Bills.com Team
Pro

By

Highlights


  • California's anti-deficiency laws are complex.
  • A HELOC may or may not be a non-recourse loan in California.
  • Consult with a California lawyer for precise advice for your facts.

I see three major issues in your question.

Foreclosure

When a mortgage lender forecloses on a home, the lender will generally sell the property, either at auction or by offering the property through a broker. Once the home is sold, the lender applies the sale proceeds to the balance of the original mortgage. If the sale proceeds are insufficient to cover the entire amount owed, which is often the case, especially with the recent drop in home prices, the remaining debt becomes a "deficiency balance." Depending on the type of loan and the laws of the state in which the property is located, the lender may be able to pursue the borrower for payment of the remaining deficiency balance of the debt.

Recourse vs. Non-recourse Loans in California

A recourse loan is one where the lender has the legal means to collect the deficiency balance from the borrower. A non-recourse loan is a loan where the creditor's ability to collect on a defaulted loan is restricted to any assets used to secure the loan. In other words, if the lender forecloses, then it cannot get a deficiency judgment and attempt to collect it from the borrower. Whether a loan is recourse or non-recourse varies with the state you reside in, and the nature of the loan.

California recourse rules are intricate and somewhat tricky. (We cite California statutes and case law here as an aid for your attorney to research your issues and facts.) Under California law, a lender cannot pursue a borrower for a deficiency balance resulting from a first mortgage used to purchase a residence. (Cal. Code Civ. Proc. § 580b)

In California, purchase money loans made on your home are non-recourse. (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35, 41 (1963) and Spangler v. Memel, 7 Cal. 3d 603, 610, and 612 (1972).) 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. If the borrower never refinanced and the property is still encumbered by the original purchase money deed, the anti-deficiency protection remains. (Foothill Village Homeowners Ass'n v. Bishop, 68 Cal. App. 4th 1364, 1367 n.1 (1999).)

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 (Brown v. Jensen, 41 Cal.2d 193 (1953).) 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. Similarly, Section 580b also does not apply when the borrower has refinanced the property to take out additional equity or obtain financing at better terms (Union Bank v. Wendland, 54 Cal. App. 3d 393, 400 (1976).)

California Recourse & Non-recourse HELOC Loans

A Home Equity Line of Credit (HELOC) is akin to a credit card secured by property. No money changes hands until the consumer draws on the HELOC, which is customarily not done at the moment of purchase.

By contrast, a Home Equity Loan is a lump sum borrowed at the time of purchase or thereafter and is similar to a second mortgage. How an agent/broker structures the home equity loan may determine whether a home equity loan is a recourse loan.

Many banks limit the size of mortgage loans they will extend to 80% of the appraised value of the home being purchased. Traditionally, the remaining 20% of the purchase price was covered by the borrower's down payment.

During the housing boom of the mid-2000s, people who had little or no money to bring to the table as a down payment were able to purchase homes through various creative financing arrangements. To sell a home to an individual with no money for a down payment, a broker would often arrange with the seller to formally transfer the home to the buyer for 80% of its appraised value. A separate agreement would then be made between the buyer and the seller for the buyer to pay the remaining 20% immediately following the transfer of the property. The broker would pre-arrange a home equity loan for the 20% unencumbered equity (since the home was sold for 80% of the actual value, the new owner now had 20% equity); once the property was formally transferred, the 20% home equity loan could be finalized, with the proceeds used to pay off the 20% of the value that the buyer (now the owner) still owed to the seller.

All of these transactions took place in immediate succession, so to the buyer and the seller, it looked like a single deal. However, from a legal perspective, the home equity loan closed after the sale of the property was final (since the home had already been transferred to the buyer), which could make the home equity loan a recourse loan under California law.

I do not know how your financing was arranged. I provided the scenario above as an example of how complicated home financing can be and how a home equity loan, even one signed at the same closing as the first mortgage and sale documents, may be a recourse loan.

Here, you may or may not be liable for a deficiency balance on the 80% first-mortgage loan depending on whether it is the purchase money loan you used when buying the property. Regarding your 20% second mortgage HELOC, the same analysis applies. Review your loan documents carefully to determine when the loans were taken out, and how the deed or deeds read for each of the loans. I urge you consult with a California attorney experienced in property law to review your loan documents, deeds, and titles on the property.

In many cases, home equity lenders are considered "junior encumbrances" to the first mortgage, and are entitled to a portion of the sale proceeds only after the first mortgage holder collects 100% of the amount it is owed. Therefore, many people end up owing large deficiency balances on their home equity and second mortgage loans.

Mortgage Forgiveness Debt Relief Act

Under federal law, a lender must report to the IRS any forgiveness of a debt in an amount larger than $600. Borrowers are required to report this amount on form 1099-C when they file their income taxes. The Mortgage Forgiveness Debt Relief Act exempts borrowers from the tax liability that would otherwise be created by a lender forgiving a portion of their loan balance, either in a short sale, loan modification, or as the result of a foreclosure. This legislation does not prevent your home equity lender from pursuing you for payment of a deficiency balance, if the lender chooses to try to collect the debt.

According to the IRS, the benefits of Mortgage Forgiveness Debt Relief Act can be used for debts forgiven in tax years 2007 through 2012.

In answer to your question, I believe you could still benefit from this law if your home is not sold until 2012. The date of the forgiveness really has little to do with the date of foreclosure; it is the date on which the lender actually forgave the debt. If you negotiate a short sale, it would likely be the date that the sale is finalized. In a foreclosure, the date of forgiveness could really be any date after the foreclosure, as the creditor can choose to forgive the debt at any time, if it decides to do so.

Any amount forgiven outside of the period covered by the "Relief Act" may be taxable as regular income. If one of your lenders forgives a debt, you should receive a form 1099-C from the lender, which would show the amount and the date of the debt cancellation.

I encourage you to consult with a qualified tax professional if you receive a 1099-C, so that you can make sure you are correctly calculating what you owe and to ensure that you are taking advantage of all exemptions available to you. The IRS offers valuable information about the Mortgage Forgiveness Debt Relief Act.

To learn more about foreclosure, I invite you to visit the Bills.com foreclosure page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

224 Comments

Recent Best
1500 characters remaining
  • 35x35
    Jan, 2012
    Sonia
    I just received a 1099c from BofA for the debt forgiven on my HELOC. The HELOC was part of my original loan and from what I can see in messages throughout this page, is considered part of the original purchase loan (80/20?). My house in CA was foreclosed on in 2010 and I was told at that time by BofA that the two loans would collapse and I would receive one 1099c. That's not what happened. I received a 1099c for 2010 for the home and now I just received another for the HELOC. This 1099c shows I'm personally liable for the debt whereas the first 1099c said the opposite. Had they combined the loans as I was told, the debt I would have been responsible for would not have been as much because the mortgage company was evidently given surplus funds which created a value of my house greated than what I owed. With this 1099c of over $56k, am I going to be responsible for the taxes on this amount? I've tried talking to the bank to reissue the 1099c to say I am not personally responsible, but they feel they were doing me a favor by forgiving the loan and not coming after me for that. Thank you
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      Please read the Bills.com resource Mortgage Forgiveness Debt Relief Act to learn if you qualify.
      0 Votes

    • 35x35
      Feb, 2012
      D
      Hi Sonia, We are having the same issue. What have you learned since posting this question? Will we have to pay taxes on the heloc, even though it was purchase money to buy the house?
      0 Votes

    • 35x35
      Feb, 2012
      Sonia
      I haven't learned anything concrete. I will be talking to my tax preparer and also a real estate attorney familiar with this issue to see what my options are. I tried to get the bank to re-issue the 1099 to say I wasn't responsible for the debt, but no such luck.
      0 Votes

    • 35x35
      Feb, 2012
      M
      0 Votes

    • 35x35
      Feb, 2012
      Bill
      Speaking with your tax preparer is smart. It is my understanding you can file and use the IRS Form 982 even if you did not get the 1099-C. It is similar to a person who works as an independent contractor and does not receive a 1099. In such a case, the contractor still declares the income and indicates to the IRS that no 1099 was received.
      0 Votes

  • 35x35
    Jan, 2012
    Monica
    Hello, Our home was just forclosed on in June 2010. Now, our Lender for the second is coming after me for the money. My husband was not on the loans, but held title on the property and is listed on both Deeds of Trust. My husband filed for bankruptcy in March 2010. His attorney let me know that I would be protected under common law in California and since my husband claimed BK, they are not able to come after me for the money. I have told our Lender this information and they continue to pursue payment. Have you heard of a spouse being protected under Common Law?
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      California common law does not apply in this instance, but federal bankruptcy law does. If a spouse files under chapter 7 in any state, the spouse is not protected. However, if the spouse files for chapter 13 in a community property state, he or she enjoys the same protections the filing spouse has under bankruptcy law. Therefore, my questions for you are, "What chapter of bankruptcy did your spouse file?" and "Where is your spouse's case in this process?"

      Ask your spouse to consult with the bankruptcy attorney to learn more about any stay that may protect you from creditors.
      0 Votes

  • 35x35
    Jan, 2012
    Dan
    I purchased a home in Rocklin, CA for $455k with 94k down leaving a balance of 361k. The 1st loan was 300k and the 2nd HELOC was 61k. To purchase another property, I refinanced the 61k HELOC with another from a different institution and borrowed 100k seeing the home still appraised at 460k. So, the original HELOC was paid off and another one was in place giving me 40k to put down on another home. I understand that once re-financing a HELOC or borrowing from a HELOC removes the protection from recourse, but in my situation, my HELOC was simply replaced with another that still was used as purchase money towards the home. In 2008, due to tough circumstances, a short sale was performed with the 2nd getting nothing. Come almost 4 years later I am still getting calls from 3rd party institutions. Since then, the loan has been transferred 4 times to different companies trying to collect. Is this something I am liable for? Also, seeing it has been 4 years, how does the CA statue of limitations come into play?
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      It is unclear to me if you were foreclosed on the first property you financed, or the second property. I will assume you ask about the first you purchased.

      Take a few moments to read the California decisions we cite in the original answer above regarding how refinancing removes California's anti-deficiency protection. I disagree with the court's reasoning in Union Bank v. Wendland, but that is the precedent subsequent decisions rely upon.

      You mentioned California's statute of limitations. There are many to choose from, but the one most relevant to you is found in Calif. CCP 580a, which gives a plaintiff (the lender or its assign) three months after the date of foreclosure sale to file an action to collect a money judgment related to a deficiency. It is unclear to me if the three month time limit to file an action under CCP 580a applies to all deficiency balances, or those subject to 580b-580e only. Consult with a lawyer who has real property litigation experience for a better guess.

      If CCP 580a does not apply to you, then CCP 337 probably does, which is the 4-year statute of limitations for a written contract. See the Bills.com resource Statute of Limitations for a discussion of what this law means to debtors.
      0 Votes

    • 35x35
      Jan, 2012
      Dan
      Thank you for the quick reply. Yes, I was referring to my 1st home being foreclosed. Seeing I replaced one HELOC with another (even though all funds went towards the home the 2nd time around) I assume this is now recourse? It has now been well over 4 years since making payments on the home....but it will be 4 years this June to mark the actual foreclosure date. Third party collectors have been hounding me for the HELOC to this day, am i covered under the CA statue of limitations currently? Or is my 4 years up from the foreclosure date? Also, if I am covered under the 4 year CA SOL, would this mean I would be no longer liable for the debt? I appreciate the help.
      0 Votes

    • 35x35
      Jan, 2012
      Bill
      The loan you refinanced is no longer a purchase money loan, and therefore is not covered by California's anti-deficiency law. It is, as you mentioned, a recourse loan.

      Although I gave you an ambiguous answer earlier, I am more convinced now that the three-month statute of limitations in 580a applies here. However, I hasten to add I am not a California judge, and how a California court applies 580a may be different.

      Please read the Bills.com resources California Statute of Limitations and Which Statute of Limitations Applies to Your Situation to learn more about this issue.
      0 Votes

  • 35x35
    Dec, 2011
    Kari
    I purchased a home back in 2006 with a 1st and a 2nd. I think it's what you would call an 80/20. Our house was foreclosed on in 2008, and now almost 3 years later we were notified that we owe the full amount of the 2nd. We never took out an equity line of credit or refinanced the house. Does this qualify as a non-recourse loan, and do we owe this money?
    0 Votes

    • 35x35
      Dec, 2011
      Bill
      Let us assume the home in question was situated in California. If your two loans were purchase-money loans, and you never refinanced the second (the loan you mentioned), then the second is covered by California's anti-deficiency rule. The first is, too, for that matter. Consult with a California lawyer who has real property experience for a more thorough analysis. Please return here and share what you learn.
      0 Votes

  • 35x35
    Nov, 2011
    Mun
    We originally purchased our home with zero down, 80/20 back in 2004. Three years later we refinanced those two loans to BofA and a Wells SmartFit Equity line of credit. How do I find out if my second (Wells) is a recourse loan or not?
    0 Votes

    • 35x35
      Nov, 2011
      Bill
      I will assume you ask about a California property. Please reread the original answer/article above to learn more about California's anti-deficiency rules and how to tell if your loan is a recourse loan.
      0 Votes

    • 35x35
      Nov, 2011
      Mun
      Yes, sorry. This is CA I am speaking about. It also appears that even though you could have a recouse loan, deficiency judgments against you do not seem to be allowed if the foreclosure was done non-judicially. Can you also touch on this as well as it pertains to recourse loans? Thanks
      0 Votes

    • 35x35
      Nov, 2011
      Bill
      California's anti-deficiency law is nuanced, and we attempted to capture this in the original answer above.

      Almost 100% of California's foreclosures are non-judicial. See the Bills.com resource California Mortgage Foreclosure Process to learn more about California's rules.
      0 Votes

  • 35x35
    Oct, 2011
    John
    Hi Bill, We have a home in California we purchased in 2002 for 265k. We refinanced in 2005 for 600k 1st and 35k second. We completed a large 250k add on and pool, new windows, doors, AC etc on the home with the money and paid off debt. The house is valued currently at about 510k. I can afford my home and have credit close to 800 FICO so no problems financially. Here is my problem. My next door neighbor moved in about 3 years ago and I found out he is listed as a sex offender on the Megans law website. I pulled his public record and it is not pretty, so having 3 daughters I have no interest in remaining in this house. I obviously am negative equity and can't cover the short amount to sell. With my financial situation my bank will not allow me to short sell. I would like to walk away but don't know what the repercussions are. Can you let me know what my exposure likely is. Thanks,
    0 Votes

  • 35x35
    Oct, 2011
    Chris
    I purchased a home for 300k from Countrywide, now BofA. It was a 80/20, with first being a five year interest only, and second a purchase money HELOC. I haven't touched the HELOC for anything other than making the regular monthly payments. A couple years ago, the first loan was modded in which the interest rate was reduced (and then gradually increases in a step-rate manner). I'm in the process of pursuing a short sale - theoretically, if approved, then my second, the HELOC, should be cleared as part of the sale given the CA Anti-Deficiency Act? Thank you!
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      In a California foreclosure: Was the HELOC a purchase money loan? If the answer is yes, then it is subject to California's anti-deficiency (sometimes called no-recourse) rules.

      In a California short sale: Under SB 458, which was passed in mid-2011, deficiency balances for all notes secured by mortgages or deeds of trust may not be owed or collected. See California Code of Civil Procedure 580e.
      0 Votes

  • 35x35
    Oct, 2011
    Helen
    Hi, I have a mortgage on my home in the amount of 207000 owned by Fenny May and a credit line in the amount of $175000 owed by US Bank. If I will stop paying my credit line, what consequences am I looking for? This Credit line was obtained several years after we bought the house.
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      Unfortunately for many, this is a common question. Please see the Bills.com resource Second Mortgage Foreclosure to learn more about this issue. I encourage you to ask any follow-up questions you may have on that page.

      I realize you wrote "credit line," but in this context it is really just a tarted-up second mortgage, and legally and financially all junior mortgages and deeds of trust are the same.
      0 Votes

  • 35x35
    Oct, 2011
    Heidi
    We purchased a condo in 2005 for 380K and it was foreclosed on in 2009. We had a HELOC for 85K through Wells Fargo and just last month were served with a lawsuit from WF for the full amount. We have an attempted to settle the debt for a lump sum, but they will not budge. We have another home loan through WF and if they continue to come after us for money we do not have, we will be forced to foreclose on this home too! Is there anything we can do?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      Wells Fargo may be the mortgage servicer for your present loan and for the old HELOC, but it is probably working for two separate investors, each of which it owes a fiduciary responsibility. In other words, it cannot favor one investor over the other. What does this mean to you? Wells Fargo does not possess any special rights simply because it services both mortgages.

      See the Bills.com resource Collections Advice to read an overview of your rights and liabilities.
      0 Votes

  • 35x35
    Oct, 2011
    kelly
    We purchased our house in 2004 and got a HELOC. since then our HELOC is frozen and we are behind on the mortgage. We did get a trial modification for the 1st mortgage. Also, we now have a lien on the house from another bank from a personal loan my husband guaranteed with our personal assets. That loan is current but the bank took the lien, just in case. That lien is MORE than my HELOC so does the HELOC move to the 3rd position?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      No, it is not the size of the loan that determines lien position. The first mortgage is first, the HELOC second, and the next lien that gets in line is in third position.It is a matter of who got in line first.
      0 Votes

  • 35x35
    Oct, 2011
    Nicole
    We purchased a home in May 2007 and have lived there up until about 3 weeks ago. We are still paying the mortgage on it but are deciding between trying to rent or walking away. We bought the house for $391K with $27k down. We live in CA and we have just the one loan (30 year fixed). No second, no refinance, we have not touched the loan since we purchased the property. An exact model of ours across the street was just foreclosed on and sold at auction for $150K. Of the 16 homes on our street 10 have been foreclosed on in the last two years. We were able to purchase a second home (we qualified without having to rent this place out or anything) to move into in a much better area, bigger - we need the room with a growing family, and closer to my husbands work and we just moved in. We are now just trying to figure out what is best to do with the first house. I will also be going on leave in a few months and may end up not working for an extended period of time so we are trying to be as honest with ourselves as we can on what we can and cannot swing. If we rent, we will have to supplement the mortgage about a $1000 a month. We can swing this in the short term but not sure we can when I stop work. We know the debt relief bill expires at the end of 2012. So here is my question - If we walk away from our former home, can they come after our new house? And if we chose to put a renter in place are we giving up any rights that we currently have given the house was paid for with a purchase money loan? Any help or thoughts would be greatly appreciated!
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      Consult with a California lawyer who has experience in real property law about any liability you may have if you allow a foreclosure. If you never refinanced the property in question, in other words, the loan is purchase money, then you have no liability for the deficiency balance. A foreclosure will harm your credit score, and you may have tax liability for the deficiency balance, that may or may not be mitigated by the Mortgage Forgiveness Debt Relief Act. Consider renting the property only after you consult with a lawyer to learn the tax consequences, vis-a-vis the Mortgage Forgiveness Debt Relief Act.
      0 Votes

  • 35x35
    Sep, 2011
    Andres
    I purchased a home in CA quite a few years ago, but in mid '08 we fell behind in our mortgages and eventually it foreclosed. We had a 1st and 2nd mortgage. Either in '06 or '07, we refinanced the 2nd mortgage and obtained a Home Equity Loan thru Washington Mutual. After the foreclosure, I recieved a 1099-c for the first mortgage but not for the second and it currently shows in my credit report as "ACCT SUBMITTED TO COLLECTTON COLL 12-O8 CHARGE OFF HOME EQUITY LOAN" I know it wasnt the most intelligent thing to do, but i've pretty much ignored any attempts of the collection agencies to try to collect on it. I now want to purchase a new home, but having this in my credit report is becoming a pain since i most likely wont get a loan because of this. I would like to somehow get rid of it. Whats the best way of doing this? Also, i read somewhere that the statute of limitations for CA is 4 years from the first time the agreement is broken, which i think it means from when i stopped paying. This would mean that the 4 years will be June/July of '12. Would it be best to wait this out? Last thing, the refinance of the 2nd was with Washington Mutual and at that time, my credit report did say WashingtonMutual, but now the Credit Report says Chase. Does that mean the loan was bought by them at a later time and are now trying to collect on it? How do i find out who owns the loan? Do I still owe it even though they were not the original lender?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      Chase owns the accounts of the now-defunct Washington Mutual, which is reflected in your credit report. Enter "Washington Mutual failure" into your favorite search engine to read the sad story.

      Just because the statute of limitations has run on a debt does not mean the creditor is barred from collecting it (except in Wisconsin). The expiration of a statute of limitations gives the defendant an affirmative defense should the creditor ever file a lawsuit regarding that debt.

      Debt damages a credit score the moment it becomes delinquent. Paying delinquent debt does not undo the damage. However, a pay for delete does.
      0 Votes

  • 35x35
    Sep, 2011
    Trisha
    My question is about a HELOC used as part of the purchase money for the house in California. The original HELOC was about $50k, but was paid down by about $18k, and then used again to bring the balance back up to an amount close to, but still less than the original HELOC loan amount. Then more payments were made further reducing the balance. Both the first and the HELOC were originally with Countrywide, and now Bank of America. Would this make the entire HELOC recourse? Or, would the recourse amount be the amount charged on the HELOC after the $18k paydown? Or would it be the difference between what is now owed and the lowest balance on the HELOC, after the $18k paydown? Thanks. This could make a big difference.
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      In my opinion, which is really meaningless because I am not a California judge, the key fact in your comment is in your first sentence: "...HELOC used as part of the purchase money for the house in California." California law is clear: Purchase money loans are subject to California's anti-deficiency rules. I understand this loan is a HELOC, and you diligently reduced the balance, and later increased the balance. However, I find no case law where a creditor argued the homeowner has no liability for the lowest balance of the HELOC, and liability for the difference between the lowest balance and the present balance. You advance an interesting argument, but I find no appeals court decision agreeing with your theory.

      Readers, I welcome your corrections and comments on this matter.
      0 Votes

    • 35x35
      Sep, 2011
      Trisha
      Thank you. That is encouraging.
      0 Votes

  • 35x35
    Aug, 2011
    Stephanie
    Thank you for having this website! I am looking for an advice. We went through a short sale in 2010. Our first jumbo loan came from WFB and our 2nd loan is from Chase. We borrowed the 2nd loan from Chase to cover the remaining balance to purchase the home (primary residence). On Chase document it is considered a Home Equity Line of Credit but the loan type is Balance Consolidation HELOC. During that time WFB approved our shortsale. The complication was with Chase. We had to stop making payments in order to be considered for a short sale. They had our account "Charged off." It went to the collection agency and we had to deal through them in order to get the short sale approved. After having to tell them so many times that we did not take any money out from this loan and that it was borrowed to complete our primary residence they said the only way they would approve the short sale was for us to sign this contract that says we still owe the remaining balance. We were damned if we do and damned if we don't. We had no choice but sign. After that the collection agency kept on calling us at work several times a day. I had to change my work number. After several attempt to collect the remaining balance from us we just received a settlement letter from Chase offering us a short "window of opportunity" to allow us to resolve our delinquency before our debt is accelerated. They gave us until mid Sept. to decide. We have been ignoring them the last 2 yrs and I plan on ignoring because we have our principles. I plan to ignore this letter and will not pay. We have 2 kids to raise and don't have the cash. Are we protected by the state anti-deficiency rule? Can Chase still come after us and increase our loan balance? can they come after our income? I am hoping they would give up and just forgive us..TY!
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      I don't think ignoring the issue is prudent. You need to get a solid answer as to whether you are responsible for the debt and need to deal with the consequences (which could be a wage garnishment, if you are sued and they get a judgment against you) or if the debt is not your responsibility and you can tell Chase to take a hike.

      Your signing a document that stated that the loan is a Balance Consolidation HELOC complicates matters. You need to speak to an experienced attorney who will review all your documents and advise you accordingly.
      0 Votes

  • 35x35
    Aug, 2011
    Edward
    Hi, I believe you have answered my questions in a roundabout way, but I just want to be sure. I have an FHA loan through BofA. We tried to sell the house recently because we want to move out for 1) lack of space and 2) payments are too high. We received no bites on the sale, likely because the market value is below what we owe and what we asked for. So now I don't want to throw money at a hole. My considerations are 1) walk away, or 2) short sale. We refinanced, but we did not take any money out. We just got a better interest rate. Does that put us in the recourse category? AND, if so- does that mean we should pursue a short sale? It seems in CA that if we go short sale and the lender agrees, they cannot come after us for the difference, and the tax moratorium still protects us from being taxed on the difference. It also seems the credit implications are better than a foreclosure. My further questions is- if we do a short sale, do we stop making payments? And if so, when? Now? Or once we have a shortsale realtor and put it up for sale. Finally, if we choose to walk away and go foreclosure, I realize the credit implications would be severe, but how severe compared to the short sale? We could stop making payments now, but my concern is- if we are in a recourse status, would they actually come after us? While our refinance may have put us in the recourse category, how often do they actually come after you? Sorry there are a lot of questions, this issue is convoluted all over the web. Thanks, Ed C.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      When the stakes are as high as they are in your case, you need to consult with an experienced attorney. This way, you will get legal advice from someone who is authorized to dispense it (which I am not) and get counsel from someone who deals with these issues and their consequences on a daily basis.

      To learn more about the credit impact of a short sale and foreclosure, read the Bills.com article, Short Sale, Foreclosure, and Your Credit Score.
      0 Votes

  • 35x35
    Aug, 2011
    Kelly
    Hello and thank you for this fine web site(which I just discovered!) My situation is that I bought my house at the peak in 2005. Soon after, the crash did my town in. We are bankrupt...no police to speak of...thousands of foreclosures. I've watched my neighborhood collapse. House next door sat empty nearly a year, then sold for 50k..cash. I paid nearly 410K in 05. I'm a school teacher who saved for ten years to buy this place. Heartbreaking. Anyway, I've seen the writing on the wall and intend to get out of here and start rebuilding my life. I'm just worried that I'll be held accountable for the loans money and for taxes on debt forgiven. I took out 315K from Greenpoint mortgage, which is now dead, and was sold to Countrywide, also dead, and now it's BofA. My second was a HELOC with Wells Fargo. I signed all this paperwork at one time for both loans. I put up 20k of my own hard earned cash as well. So all that is gone. Is my second loan a recourse or non-recourse loan? I never refinanced and have only been paying interest since 05, since in our district, we've actually taken pay cuts and I've not had a raise in seven years. Can Wells Fargo come after me for that 60k? Or is it purchase money and therefore not subject to them chasing after me? I just want this whole debacle behind me. I'd like to buy a house some years down the road again, but if they come at me for that money, this will be the last house I ever own (ha, sort of don't own, huh?) in this lifetime. Sad. Gut wrenching. Recourse or no? Thanks in advance for any advice. It's a rough world. Kelly H.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      Hi Kelly. Thanks for your question.

      I think we have good news for you, but you should also be sure to consult with an attorney to confirm that your loans are non-recourse since they are the original purchase loans. As stated above, in California, purchase money loans made on your home are non-recourse. (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35, 41 (1963) and Spangler v. Memel, 7 Cal. 3d 603, 610, and 612 (1972).) 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. If the borrower never refinanced and the property is still encumbered by the original purchase money deed, the antideficiency protection remains. (Foothill Village Homeowners Ass'n v. Bishop, 68 Cal. App. 4th 1364, 1367 n.1 (1999).)

      This applies to your second as well, so you should be free and clear after walking away from your own little money-pit.

      It is a rough world, but the world needs more good spirits and teachers who care about their communities... so thank you for that.
      1 Votes

    • 35x35
      Aug, 2011
      Kelly
      Awwwwhhhh......thank you for the bill of trust. I love my job. Kids are an amazing species. So just to clarify...even though I have TWO deeds, one from BofEvilA an one from the devil Wells Fargo for the heloc...since both were taken out at time of purchase and never refinanced (although I had one terrifying month where I sent double payments to the heloc. I had to transfer money back from that account into my checking account or be short for the month...Wells assured me this didn't effect status of the loan, since I only transferred between accounts money that was already there....I just don't believe them!) anyway...since both were taken out at same time, signed on same day...I ought to be peachy? Hooray for that. I'm tired of hearing the sirens outside my windows at night, and being propositioned by roaming men when I go out for my running after work. Ick. You mention in several of your posts about consulting a real estate attorney. I've tried this, and all seem to be on the take with this real estate business. "Oh hello...yes, well let me introduce you to our selling/short sale realtor person..." Any ideas on where to find someone who is a real lawyer and not some group making a buck more than they should off of a person? Again...thank you for the kind words. Seems teaching is getting a pretty bad rap these days all around. It's nice to hear kind words...really. Kelly H.
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      There is some gray area where a second deed is involved, which is why it is important to speak to a real estate attorney.

      The best way to find one is through a personal recommendation from someone whom you trust. Did anyone you know go through a similar experience and have a need for an attorney? If no referrals are forthcoming, then you have to shop around. Most lawyers give free consultations. You really only need the one issue addressed, but it will likely involve reviewing your second mortgage paperwork. Find out how much it costs and what experience the attorney has with this issue. If someone is trying to sell his or her short-sale services, you have some reason to be wary, but you may need that kind of assistance, too. A good attorney can guide you through the short sale, deed-in-lieu of foreclosure, or foreclosure options.

      Please also read the Bills.com article on how to find an attorney.If you do find out that you are liable for the HELOC deficiency balance, make sure to consult a tax professional about the tax implications.

      Lastly, please report back on how things develop for you. Keep the faith!
      0 Votes

  • 35x35
    Aug, 2011
    Al
    When I bought my home in 2006 I took out a first and a second for the Jumbo Loan.I put down 20% and then the lender did an HELOC for 72thousand.The bank then foreclosed on the first. The second which was part of the original loan then charged it off instead of closing it. It appears as a charge off on my credit. Is what chase bank did accurate or should it state closed on my credit as the first mortgage does? I still get collectors calling me to settle but when I tell them its part of the original loan they leave me alone. Thank-you
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      A charge-off is an accounting term used by creditors and is separate from whether or not you have to pay the debt. I believe that it is proper for your report to show a charge-off.
      0 Votes

  • 35x35
    Aug, 2011
    Daniel
    We purchased a home in 2005 with an 80/20. We refinanced the first with Bank of America in 2007 and have more than 50% negative equity. We wish to get out of our current home and neighborhood. We are looking into purchasing a second residence and renting out our original residence or entertaining a short sale or foreclosure scenario. I believe the first mortgage is considered a "recourse" loan, since it has been refinanced. What are the chances the lender pursues a judicial foreclosure (if we choose that path) or a deficiency judgement for a short sale? We would be protected from our 2nd lender (purchase money) correct? That leave about $262,000 left on our first mortgage, with our house probably worth about $145,000. If a short sale, what type of resolution should we aim for? What is the most likely scenario should we short sale or foreclose? Would we be able to escape into bankruptcy?
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      You should speak to an attorney, to make sure the 2nd is a non-recourse loan. Also discuss your options regarding short sale, deed-in-lieu of foreclosure and letting a foreclosure take place.

      I think you should also speak with a bankruptcy attorney, in order to see what kind you qualify for and how it would possibly eliminate any of your obligations.
      0 Votes

  • 35x35
    Aug, 2011
    Jennifer
    Sorry if this is a duplicate question. I didn't see my previous post. I live in CA and I am behind on my first 8 months now. Still current on my Heloc, but simply because the payment is $99 and I don't want them to call me 5 times a day. Both 1st and Heloc are with Chase. Both are recourse loans (refi and Heloc.) No NOD filed yet. I have two questions: 1.) Does the One-Action Rule apply to recourse loans if Chase files non-judicial foreclosure? If so, does that mean they can't come after me for the full Heloc deficiency amount? If so, would I expect a 1099-c on the Heloc, as well as the 1st when they foreclose? 2.) I believe I qualify for the Debt Forgiveness Act insolvency exemption, as my debt exceeds my assets. Does this exemption cover recourse loan COD income on both the 1st and the Heloc? Thank you!
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      1. Under California law, only purchase money loans are subject to California's anti-recourse rules. You mentioned one was a refinance, and implied the HELOC was not a purchase money loan. If this is the case, the neither are subject to California 580a-580d. In other words, you have personal liability for any deficiency balance resulting from a judicial or non-judicial foreclosure. Under 580e, you may not have liability for a deficiency balance on the senior loan if there is a short sale, however.
      2. I am uncertain what you are referring to when you mention the "Debt Forgiveness Act." If you mean the Mortgage Forgiveness Debt Relief Act, this provides tax relief for some mortgage loans forgiven in 2007 through 2012. The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. See the IRS document The Mortgage Forgiveness Debt Relief Act and Debt Cancellation for more information.
      3. Even if you don't qualify for the MFDRA exclusion, you may be able to use the IRS Form 982 to avoid declaring the forgiven debt as income. Check with a tax professional, to see if you meet the standard of hardship based on your assets and liabilities.
      0 Votes

    • 35x35
      Aug, 2011
      Jennifer
      Thank you for your reply. I am aware that my two loans are recourse loans and that I have personal liability. I live in CA. My concern is whether or not the MDFRA applies to me if my loans are "recourse" loans. Do you know? I will certainly qualify under the insolvency exemption of MDRFRA, as my debts outweigh my assets. If not, I don't think I have any other options other than to file CH 13 and do a lien strip on the Heloc and protect myself from any deficiency judgments on the 1st. However, I don't have any other debt, other than the 1st and Heloc, so I'd like to avoid CH 13, if possible...but don't know what else to do to protect myself from liens and claims that may arise years after foreclosure. Thanks.
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      Let us say for the sake of argument a homeowner allows a foreclosure and there is a deficiency balance of $100,000. State anti-deficiency rules do not apply for whatever reason. The homeowner is completely destitute, and the mortgage servicer files a 1099-C and gives up on collecting the debt. The homeowner has a tax liability issue concerning the canceled debt. In steps The Mortgage Debt Forgiveness Relief Act, which waives federal tax liability for the canceled debt. This law is unconnected to state anti-deficiency laws.

      Now let us take the same scenario and change the facts. Let us say the homeowner has assets or earns a good income, and the mortgage servicer pursues the homeowner for the deficiency balance. Here, the homeowner must negotiate a settlement for the deficiency, or may choose to file a chapter 7 or 13 bankruptcy to resolve the debt.

      In some cases, the mortgage servicers will issue a 1099-C and sell the collection account to a collection agent, giving the former homeowner two problems to handle. The Mortgage Debt Forgiveness Relief Act handles the federal tax liability, but does not resolve the deficiency balance.

      Consult with a bankruptcy lawyer to discuss your options.
      0 Votes

  • 35x35
    Aug, 2011
    Lance
    My situation is almost identical to above except. -I moved out a year and half ago due to work in another state -I am current in my payments -I paid off the original HELOC, which was part of the original purchase with another HELOC 6 months after for $15K more Is this HELOC going to still fall under the non-recourse loan or at least everythingminus the $120K
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      Refinance a purchase money loan? In California, refinancing removes the anti-deficiency protection in purchase money loans.
      0 Votes

    • 35x35
      Aug, 2011
      Lance
      Any idea what i should expect from the bank which has the HELOC at the end of 10 years or if I have to foreclose before the 10 years? I am currently only paying interest only on this HELOC.
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      I do not understand the gist of your question. As long as you are fulfilling the terms of your HELOC contract, then the lender may not foreclose or take another legal action against you. If your HELOC contract allows you to make interest-only payments, then you do not face foreclosure in the immediate future.

      However, if you are inventing your own payment that is less than the agreed-upon amount, then you risk foreclosure at any time.
      0 Votes

  • 35x35
    Aug, 2011
    Toni
    Hi Bill, thanks for the great information. For my situation, we purchased our home in CA back in 2006 and thankfully have never had to miss a payment. Our $550k mortgage is an 80/20 originally from Countrywide, now at BofA, with 10 of the 20 coming from cash from the sale of our previous home, and the other 10 ($62k) being a HELOC which was used solely as a purchase loan and never drawn from otherwise (actually, withdrawals from the account were soon disabled in 2007 due to the market decline). The HELOC is currently under 4% but had been as high as 8.25%, and the first mortgage is $490K at 6.75% 30-yr fixed, with an interest-only option for the first 10 years. We have been making basically just interest payments on both loans for 5 years, and our house is basically worth what we owe (we did a number of improvements ourselves to raise the value before it fell back down). My understanding is that as long as we do not refinance, both of these loans retain their non-recourse status. Q1: Is this correct w.r.t. the HELOC? Because I read below that someone had a HELOC through GMAC that after foreclosure was transferred and considered as "unsecured consumer debt" for which they could be pursued. If that is what happens, I would imagine ANY HELOC would be treated by the banks in the same manner, and actually does become a recourse situation to someone, no? Q2: Is there any scenario by which you see that we could refinance the first loan, or the first and the HELOC into one large loan, at some better rate offered today, and still retain non-recourse stature on the new loan? Despite 5 years of on time payments at 6.75%, we have been unable to find a single lender to switch to and get a rate under 5% due to now being basically even on the home and losing our cash downpayment. BofA has no interest at all in renegotiating us to a lower rate even if it means losing our business. Q3: Would a refi in this case be even considered foolish, because if the market slides further we would lose our non-recourse status on the loans?
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      Answers to your three questions follow:
      1. In California, non-refinanced purchase money loans used to buy property are subject to California's one-action rule. This means, essentially, that if the creditor forecloses, it may not pursue the borrower for any deficiency balance. The rule is more complicated than my paraphrase, but it is accurate enough for the purposes and facts you related in your question. Some HELOCs are not purchase-money loans, which explains why some Bills.com readers have liability following a foreclosure for the deficiency balance. If your loan was a purchase money loan that was never refinanced, and your mortgage servicer forecloses, you have no liability for any deficiency. Ignore the experiences of others who may have different situations.
      2. In California, I do not see a way to refinance a loan and make it retain its purchase-money characteristic. The legislature will need to rewrite the law, or the California Supreme Court will need to reverse several of its decisions on this matter for refinanced loans to qualify.
      3. Only you can answer this question. Here are the issues I see:
        • What are your long-term plans for staying in the home?
        • What are your long-term employment prospects in your area?
        • Is the property in an area where values have held steady or fallen? The common view is that it will take a long time for values to rebound in the central valley, but a shorter time along the coast and in the mountains.
        • Is your property in a desirable neighborhood with above-average schools and amenities?

      I realize I did not answer question No. 3, and that is because this type of question must be answered on a household-by-household basis.

      0 Votes

    • 35x35
      Aug, 2011
      serguei
      Hello. We have purchased our town home 80 IO /20 HELOC where citi mortgage is the first loan and citi bank is second. We have never refinanced, however first loan was recently modified and fixed. Also we took an option offered by citi and converted HELOC to a fixed loan (converted balance loan). We now get citi bank bills that have two accounts listed; one for original HELOC with zero balance and the converted account. Now im looking into doing settlement with citi bank for second loan. the question is, in this situation would we be liable for taxes on forgiven (settled) debt. Thank you in advance.
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      You need to ask a lawyer, to get an authoritative answer on which you can rely.

      It could very well be the case that you lost the non-recourse protection you had on the purchase money loan HELOC, when you converted it into a fixed loan. Have an attorney review your loan paperwork to find out.

      Remember, even if you receive a 1099-C for debt forgiveness, you do not have to declare the forgiven debt as income if you meet the financial test associated with the IRS From 982, which is based on an analysis of your assets and liabilities. Discuss this with a tax professional.
      0 Votes

    • 35x35
      Sep, 2011
      Toni
      Thanks so much for your answer! This is a great blog!
      0 Votes

  • 35x35
    Jul, 2011
    ted
    So I have an interesting situation. I have a SFR in California that was purchased with the intention to live in it, but due to heavy remodel and repair I was never able to live in it so it was treated as a 2nd home on my taxes. The property is currenly just a shell. I refinanced the property using a $475k HELOC which is in 1st position and eventually added a second. I stopped paying in middle of 2009, the HELOC was charged off, I filed BK CH7 and was discharged end of 2010. It's now 2 years since I have made a payment and almost a year since discharge and the HELOC lender hasn't even issue a NOD and seem to indicate they will not foreclose and will wait for county to foreclose due to neglect or back property tax andof course the 2nd wont foreclose because it is worth less than the 1st. So right now this property is like an anchor around my neck just waiting to foreclose and because of the second I cannot sell/short sell/deed in lew. My quesion is, is there any point and any process where the HELOC lein becomes invalid / uncollectable agaisnt the property?
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      Consult with a lawyer in your state to learn if filing a quiet title action will accomplish your aim to remove your name from the property's title.
      0 Votes

  • 35x35
    Jul, 2011
    John
    Hi Bill, Thanks for all the great info. I just want to confirm that there is recourse to my HELOC. I initially prurchased my California home for $510,000 (jumbo loan.) Prior to my baloon payment the mortgage was refinanced through my credit union with a a conventional loan and a HELOC. No money was ever taken out of the HELOC, rather I payed extran every payment. I tried a deed in lieu of forclosure but they declined and said they would run the course of forclosure. Now they telling me if I don't attempt a shortsale they will pursue the money on the HELOC and that I am liable. I had done research prior and my undrstanding was if I did not use any monies for other than the refinance I would not be liable. But reading your responses it sounds like the credit union does have rcourse. HELP
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      Was the HELOC a purchase-money loan? If you received the HELOC as part of the deal to purchase the house, then the HELOC is a purchase-money loan and is subject to California's anti-deficiency rule. If the transaction to get the HELOC occurred after your purchase, then it is not covered by California 580.

      I am confused by the facts you shared, and it is unclear to me if the HELOC was a purchase money loan.
      0 Votes

  • 35x35
    Jun, 2011
    mel
    Hi Bill. We live in CA and purchased our present home with no money down 1st and 2nd purchase money loans (400k 1st, 100k 2nd). We recently inherited some money and decided that we should purchase a new home to get out of our situation (first home value is currently approx 345k so the inherited money would not have made much of a dent in the loan). We just closed on our new home and we are transitioning between the two houses-we intend to make the new home our primary residence. If I understand your article and the other posts correctly, it sounds like we have non-recourse loans for the 1st and 2nd on the first home and that they (Wells Fargo) cannot come after us for the equity in our new home? We also have a rental condo which has a 1st mortgage for approx 174k (about what it is worth so there is no equity there). We are about to embark on a short sale for the first home and intend to stop paying our mortgage on the first home. This sounds bad, I know, but our attempts to do a loan mod with Wells Fargo didn't work as they told us to "call again when we were 3 months behind." We have a family and did not want to wait until we couldn't purchase another home...hence, our present situation. Basically, I just want reassurance that Wells Fargo cannot try to come after us for our 401k, liquid assets (some savings) or the equity we have in our new home. Thanks so much!
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Are the $400,000 and $100,000 loans you mentioned purchase-money loans? By purchase-money, I mean, did you ever refinance them? If the answers are "no" to both, then California's anti-deficiency rules apply to you. If you refinanced the loans, the laws do not, and you have personal liability for any deficiency balance. Consult with a California lawyer who has experience in real property law for a much more complete analysis of your facts.
      0 Votes

  • 35x35
    Jun, 2011
    Scott
    Hi, thanks so much for creating such an informative blog! I am in CA and purchased a home in 2005 for $570K on an 80/20 deal with Wells Fargo. The 2nd was refinanced in 2007 with Wells Fargo again and we did not take any cash out. I've seen several references to this scenario as an exception whereby this may still be considered purchase money since it was with the originating lender and for the original amount (ie: no cash out). Have you heard of this as a possible exception that would make this loan non-recourse even though it was a refi? Thanks so much for your help!
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      I have read online discussions where commentators articulated the argument you summarized here. However, I have read no decisions by appeals or higher court judges agreeing that a no-cash-out refinance is treated the same as a purchase-money loan under California's anti-deficiency law.
      0 Votes

    • 35x35
      Jun, 2011
      Rusty
      We're in California. We have a 1st with B of A and HELOC with US bank, both recourse loans due to refinancing. We are requesting to be allowed to do a short sale. We should be able to pay off B of A but not the HELOC. US bank is impossible to deal with. They state that they are required by law to charge off our loan within 180 days of default and proceed with getting a judgemnet against us to collect the balance owed. My questiona are: 1. if the 180 day thing is true why are there so many owners who go two or more years without foreclosure or charge off? 2. If US Bank is still attmpting to collect their loan, how can the amount of the 1099 be determined before the amount of any settlement on the collection has been determined and paid? Does the IRS consider that the act of charging off the loan makes our forgiven debt the entire amount of the charge off even if we pay US Bank something later?
      0 Votes

    • 35x35
      Jun, 2011
      Bill
      I think you are conflating two separate legal issues.
      1. Under FDIC and Treasury guidelines, a financial institution should charge-off (sometimes called write-off) a debt when it is delinquent for 180 days. Note the use of the word guidelines: the 180-day guideline is not a hard-and-fast rule with consequences for violations. To your point, foreclosure and charge-off are not synonymous. The only rules regarding the timing for foreclosure concern the minimum time a lender must wait, not the maximum. See the Bills.com resource California Mortgage Foreclosure Process to learn more.
      2. The 1099 issue is maddening because the title of the 1099 includes the words "cancel" and "debt," which implies the lender is forgiving the debt. Unfortunately, that is not the case, as the hyperlinked article I just mentioned indicates. The short answer to your question is, the lender can issue a 1099-C and continue to pursue the borrower. If the borrower makes later settlement, both will need to file amended tax returns.

      The issues you raised in your questions are tricky and the answers are contrary to outward appearances and common sense.

      0 Votes

  • 35x35
    May, 2011
    MG
    Here's a very informative article that discusses non-recourse debt, 1099-C, etc. My short sale nightmare.
    0 Votes

  • 35x35
    Apr, 2011
    Kay
    I believe I am in a situation with Chase which is similar to CountUSC. I purchased my home with a $300,000 adjustable rate mortgage and a $125,000 'home equity loan.' Both were purchase money loans. I short-saled the house in March 2010. In April 2010 Allied International informed me that $3,000 was applied to the principal on the short sale and I have a pursuable deficiency balance of $125,779.67. Although I never received a copy of the document, I believe Chase had me sign a very similar form stating that I am responsible for deficiency balances. Allied International has offered to take $50K to settle the debt. Based on what I have read, they would probably accept $15K to $25K. Unfortunately, I am unemployed, unmarried and broke. Do Allied International or Chase have to get a deficiency judgment within a certain time period? If they do not get a judgment, will I eventually not be liable to pay them? How does CP 580a affect my situation?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      California SB 931, which was signed into law September 30, 2010 and became effective January 1, 2011, outlaws a deficiency judgment under a note secured by a first deed of trust or first mortgage for a short sale. Therefore, no matter what the mortgage servicer asks you to sign regarding the first deed of trust, you have no liability for a deficiency balance if this was a purchase money loan.

      California's new anti-deficiency law does not apply to junior deeds of trust in a short sale situation.

      You asked about a time limit. Under California Code of Civil Procedure 580a, "Any such action must be brought within three months of the time of sale under the deed of trust or mortgage."
      0 Votes

    • 35x35
      Apr, 2011
      Kay
      Thank you so much for your answer. Your forum has helped clear up so many of my questions. The form I signed was definitely for the second deed, which is the only money they are pursuing. I received a 1099-C for the cancellation of the debt on the first. I assume they sold the balance on the second to Allied International and I am guessing that I am on the hook for whatever Allied International can get out of me. I am still not clear on what constitutes 'action' as far as CP 580a is concerned. Once a third party owns the debt, do they have a finite amount of time to pursue it?
      0 Votes

    • 35x35
      Apr, 2011
      Bill
      In this context, an action is the filing of a lawsuit. The lawsuit can be filed by whoever has the legal right to make such a filing. This could be the mortgage servicer, the investor, or whoever is assigned the collection account, such as a collection agent.
      0 Votes

    • 35x35
      May, 2011
      Keele
      My situation: 4 years ago we moved out of our principal residence in CA. I believe we have a recourse loan from what I've read on your forum because although we have one mortgage with BofA for the property now, it is only after we refinanced to them to get a better rate. We tried to sell our property before moving from there and couldn't so we ended up doing a "Contract For Deed" installment sale with someone. We purchased a new primary residence home in TX and they moved in to the CA home. The neighborhood was really declining for us and schools were terrible, etc. for our children, so the move was necessary. The contract for deed was never recorded because we told the other party we wanted to see how it goes and make sure they are paying on time each month. The deed is still in our name and we have been paying the mortgage with the money they send us. They have now been late sporadically on about 10 different payments over the past 3 years. They have not paid the property taxes now either for this year. We owe $450k on this house and it's worth only $280k now. We make too much money for bankruptcy, but not enough to pay this mortgage without their payments coming in to us. From what I've read, a foreclosure is our only option because we will not be approved for a short sale either since we are not living in the home as our primary residence. We are okay with proceeding with a foreclosure on this home. We can continue paying all of our regular debts and mortgage on our home here in TX. I am concerned about the following... 1. we will have to pay a deficiency judgement and 2. when we did the original contract for deed we reported the sale on our tax returns and it was for $560k which was the terms we agreed upon with the new buyers. So it fell within the $250k capital gains rules, so we had none. If I now foreclose and then ultimately receive a 1099C and have to report the deficiency funds as income, then can I just go back and amend the tax return or something possibly that the sale never came to fruition since the Contract For Deed is now being cancelled? It seems that if I go that route, then I still qualify for the $250k capital gain rule that I won't have to claim. Can you tell me what type of attorney I need to look up to answer these questions? Real Estate attorney, foreclosure, bankruptcy attorney, or tax accountant? I'm unclear and feel like none of the rules seem to fit our unique situation since it's not a rental property, but it's also not our primary residence either. And, by the way, we DON'T wish to keep this property, so we don't want to go the other bankruptcy chapter route where we get to keep the home and just repay over new terms. Thanks SO very much!!
      0 Votes

    • 35x35
      May, 2011
      Bill
      Before you assume that Bank of America agrees with my analysis that your California mortgage is not subject to California's anti-deficiency laws, you need to learn if it thinks you have a no-recourse loan. I am reasonably certain of my analysis. However, I received a message from a Bills.com reader where she, her lawyer, and a California mortgage servicer had a conference call regarding a refinanced mortgage, and the servicer concluded that, after reading the contract, California's anti-deficiency law did apply.

      I am not not saying whether Bank of America will consider your refinanced mortgage a recourse loan. What I am saying is that when facing a foreclosure in California, do not assume the person on the other side of the table shares your thinking or understanding about California's laws. Mortgage servicers employ people, and people make mistakes.

      Consult with a lawyer who has experience in real estate law. I realize the capital gains issue is an important concern, but it is secondary to your need to dispose of the California home quickly and with as little liability as possible. Of course, a tax lawyer may analyze your situation differently, but I see the foreclosure as the bigger of the two forest fires you are battling.
      0 Votes

    • 35x35
      May, 2011
      Keele
      Thank you for the information. It is my understanding that even if we have a recourse loan, I only need worry about a deficiency judgement if bank does a judicial foreclosure, and they almost never go that route in CA. I've heard. I will speak with a lawyer as suggested and hope for the best. Thanks again!
      0 Votes

    • 35x35
      May, 2011
      Aaron
      Bill - thank you for this great info. We did an 80/10 -- 10/1 ARM in CA with 10% down. We have a first for 950K and a HELOC for $120K that was done in as part of the purchase of the home. Truth be known, our 1.2M home is probably worth somewhere between 800 - 900K... we are 300 - 400K in the red on paper. We are both still employed and are not having trouble making payments. We have a reasonable amount of savings as well. When I do calculations online to see if we would qualify for a loan mod, the answer comes back as an unequivicol NO. My concerns... 1) We are 5 years into our 10/1 ARM 2) Inflation and future interest rates 3) We have paid 0 principle in 5 years and are 300K+ in hole on paper. I feel like we do not have options b/c it seems as though we would not qualify for a mod, short sale options may be limited based on our financial situation. Are you seeing other options besides foreclosure for someone in our situation? I feel like I am functionally living in the red just waiting for things to get really bad in 5 years, especially if our interest rate skyrockets when the 10/1 adjusts. In 5 years... who knows if they will have any programs and options left for us. The housing market might be old news to the government. I would love your thoughts.
      0 Votes

    • 35x35
      May, 2011
      Bill
      You have four options:
      1. Continue the status quo and hope that in 5 years
        1. The property value rises
        2. Interest rates are close to today's rates
        3. You qualify
        4. You still want the house
      2. See if you qualify for an FHA Short Refinance
      3. Sell the property as part of a short sale or deed in lieu of foreclosure
      4. Strategic default

      The FHA Short Refinance program may be problematic for you given the value of your house. However, it is worth investigating, and if you qualify it would be the best of all four options.

      0 Votes

    • 35x35
      Aug, 2011
      Steve
      I see many similar situations to mine, but nevertheless, I will ask. The situation is this: First mortgage = approx $350K (refinance of original) Second mortgage = $202K (subsequent to purchase) current home value = approx $300K ($250K underwater) We refinanced both the first and the second mortgages. First is with a local credit union, second is with BofA. We did extensive remodel/renovation to the home and have since moved out and are renting it out. We are in the process of purchasing a new home and will most likely have to short sell the old house after the new house closes. Under the current best-case scenario, if the 1st and 2nd agreed to a short sale and it sold for $300K, obviously the 2nd would get nothing (again that is best case and likely would not happen). My questions are these: 1) if in any scenario where the 1st is satisfied completely or partially due to a short sale, are we liable for both the differences in the 1st and 2nd? 2) if the 1st is non-recourse, but the 2nd is recourse, what are the options? 3) if we merely allow the house to go to foreclosure in the worst case scenario, would we still be "on the hook" for the balance(s) from either the 1st or 2nd? 4)are there any other scenarios we should consider? Thank you
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      In short sales I have been privy to, the first and second agree to share the deficiency. In colloquial terms, they both get a haircut. However, if there is a foreclosure, then the senior is first in line, and the junior gets what is left over. Here, neither loan is a purchase money loan, so if you allow a foreclosure, neither is subject to the protections in California 580a-580d. Given the facts you provided, you have liability for the deficiency balance for each if you allow a foreclosure.

      If you agree to a short sale with the two lenders, then California 580e comes into play. As I read 580e, it protects the consumer from deficiency balance liability on a senior loan, but not a junior loan(s).

      You asked about your options and other scenarios. One is to consult with a bankruptcy lawyer to see if you qualify under chapter 7, assuming the liability amounts for a foreclosure and short sale. In the long run, you may be in a better position by allowing a foreclosure, and then filing for bankruptcy.
      0 Votes

  • 35x35
    Apr, 2011
    Juan
    I purchased a home in CA in 2005. Both 1st and 2nd loan are from WAMU and never re-financed. The 2nd loan is HELOC with marked "purchase" and "cash out" on the BROKER DOCUMENT REQUEST page. Is 2nd loan considered as a purchase money loan and a non-recourse. Thank you.
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Take both the first and second deeds of trust (mortgages) to a California lawyer who has experience in foreclosures. The fact that the second contains a reference to "purchase" and "cash out" does not tell me whether it is subject to California's anti-deficiency rules. A lawyer who can read both documents in person will be able to give you an opinion in a few minutes.
      0 Votes

    • 35x35
      Apr, 2011
      Oliver
      Hi, so I live in CA and my home foreclosed, I had 2 loans, 80% & 20%. They were both used to purchase the home. I'm not exactly sure how it was set up, and LoanCity was the lender for both and they went out of business. How do I go about finding out the details of my loans if I can't locate the initial loan docs?
      0 Votes

    • 35x35
      Apr, 2011
      Bill
      Original loan documents can sometimes get lost when loans are sold repeatedly. You have several options:
      1. Call the mortgage servicing company (the company that collects the monthly payments for the investor). The current servicer may have the information you seek.
      2. Consult with a lawyer who has real estate experience and ask for a forensic loan audit. The servicer will need to provide copies of the original loan documents.
      3. Consult with a lawyer who has real estate experience and file a quiet title action. Again, the servicer will need to provide copies of the original loan documents to defend this lawsuit.

      Please return here to let us know which of these options (or any other) you chose, and the outcome.

      0 Votes

  • 35x35
    Mar, 2011
    Kerry
    I live in California & bought a condo about 6 years ago. Just as the housing market plunge started I refi'd. Our condo is now worth 1/3 of the purchase price so we've been looking at our options & had an attorney look at our loan docs. From examining the loan docs she believes we have recouse loans (1st & 2nd) so to confirn she spoke with the lenders on speakerphone with us in attendance & both lenders stated the loans are only secured by the property & are non-recourse. Feeling uneasy, a week later I again contacted both lenders & was assured both loans were non-recourse. I told them it was a refi & asked if they were sure & again the response was that they were non-recourse. I was told because it's an adjustable rate mortgage it's non-recourse though I'm not sure what this would have to do with it. Could I be that lucky to have refi'd & still have non-recourse loans? In comparing loan docs the wording is exactly the same from the original purchase money loans to the refi loans.
    0 Votes

    • 35x35
      Mar, 2011
      Bill
      Like your lawyer, I am flabbergasted by the mortgage servicer's opinion that your loans are non-recourse. It would be wonderful if they sent you a letter indicating their opinion. If not, at minimum you or your lawyer should follow-up with a letter thanking the participants for their time in the conference calls, and repeat the relevant portion of what the servicer's representatives opined. That way, if the servicer ever forecloses, you have a thin thread of evidence to show you acted on the promise from the mortgage servicer that the loans were no-recourse, and therefore have no liability for the deficiency. That thin thread may be all it takes for a judge to throw out the servicer's claim you have liability for a deficiency balance.

      Of course, involve your lawyer with any correspondence you have regarding these loans, or consult with him or her if you plan to default.
      0 Votes

    • 35x35
      Mar, 2011
      Kerry
      Thanks for your response. I just realized I typo'd in my comment & should have stated that from reading the loan docs the lawyer felt we had no-recourse loans because both loans state they are only secured by the property & nothing more. When questioning the lenders reps on the phone we asked what other recourse they had on default of payment & in both cases the response was that they could only take the property. The only thing the lawyer could figure is that my refi was treated more like a loan mod. We did ask the lawyer if we needed a letter but she felt the loan contract was the binding document & nothing more was needed.
      0 Votes

    • 35x35
      Mar, 2011
      Bill
      I am loath to contradict the advice of a reader's lawyer. He or she has a much more complete understanding of the reader's facts, and in most cases has a better understanding of the state's relevant statutes and case law. With that caveat in mind, were I in your shoes, I would want to memorialize the conversations with the representatives in some way. Write out your notes. Include the names, dates, times of the calls, and whatever you can recall from the conversation. Include even incidental comments, such as if a person joined the conversation late because they had their child at the doctor for an ear infection, for example. Your notes may or may not end up being a piece of evidence someday, but I would still want as much of the conversations reduced to paper to help build a case that you acted on the mortgage servicer's assurance it had no recourse against you.
      0 Votes

  • 35x35
    Feb, 2011
    Jesenia
    I live in CA and have two loans on my home, it's an 80/20 loan. We purchased our home in 2005, and a year later refinanced as our rate was only for one year. We did not take out any money, and we will lose our home to foreclosure. I looked at our paperwork to see if it said anything about non-recourse or recourse and couldn't find anything. I'm concerned as to whether or not we qualify for the Mortgage Forgiveness Act & whether the bank can come after us for the 2nd loan. Can you help clarify? Thank you!
    0 Votes

  • 35x35
    Feb, 2011
    Cindy
    Hi Bill, I bought my California house in 2005, Countrywide was the lender and it was a 80/10/10 structured loan. Countrywide was the lender for the first and second, I provided 10% down. This was purchase money only as the funds went from escrow directly to the seller for the purchase of the house. I did not have the ability to use this as a HELOC type loan. The loans were never refinanced and I lived in the house for 3 years, it sat vacant until it was foreclosed on in 2010. I have reviewed my second mortgage wording and it does have a power of sale clause. My question is, Bank of America has this listed on my credit report as a charge off loan, open and when I called them they said that I still owe them the money and they want to set up payment arrangements or they will sue me for the money, is this legal? Am I responsible for this second? Thanks for your help.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      My reading of § 580 et seq and related appellate decisions indicates to me that a purchase money loan, whether it be a first, second, third, and so on are no-recourse loans if used to purchase your personal residence and never refinanced. However, my words here and a few dollars buys you a cup at Starbucks. Consult with a California lawyer who has property experience to get a more precise opinion that is based not only on the facts you presented here but others that might be relevant.
      0 Votes

    • 35x35
      Feb, 2011
      Dale
      California case law is very clear on 80/20 mortgages. If the loans were never refinanced and both loans were taken at the same time to pay for the residence. The 2nd loan (ie bank note company can't go after you personally.
      0 Votes

    • 35x35
      Feb, 2011
      Bill
      I agree with your analysis if both loans in the 80/20 were what California statute and case law calls purchase money loans.
      0 Votes

  • 35x35
    Feb, 2011
    John
    Hi Bill, we went under short sale process 2 years ago and finally sold our house in Jan, 2010. We had 2 mortgages(80/20) both were acquired at the time we bought the house(July 2006). We received 1099-c for both loans. On the first loan, box 5 says we are not personally liable for repayment but this is not true for the second loan. Is BofA going to come after us to repay this loan? What is the statute of limitation?
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      California SB 931, which was signed into law in late 2010, outlaws the collection of deficiency balances on first mortgages or deeds of trust following a short sale. You have no liability for the deficiency on the first. The new law does not include second mortgages/deeds of trust. You have personal liability for any deficiency balance on a second resulting from a short sale. If I understand California Code of Civil Procedure Section 580a correctly, the creditor has three months to file an action.
      0 Votes

    • 35x35
      Feb, 2011
      John
      Hi Bill, thanks for your response. I have 2 comments, 1. The bank can still collect even if the second loan is considered "purchase money"? 2. You said the bank has 3 months to file an action, 3 months from the short sale or 3 months from when I received the 1099-c? Thanks for your help,
      0 Votes

    • 35x35
      Feb, 2011
      Bill
      California's anti-deficiency law is found in the Rules of Civil Procedure 580 et seq.
      1. CP 580e (which was SB 931 as moved through California's legislature) is specific in that it covers first mortgages and deeds of trust. Consult with a lawyer who has property law experience to see if my interpretation is too narrow.
      2. I apologize for my earlier unclear answer. CP 580a reads, "Any such action must be brought within three months of the time of sale under the deed of trust or mortgage."

      As I read 580a, the significant event is the date of sale, and nothing else such as the issuance of the 1099-A or -C.

      0 Votes

    • 35x35
      Feb, 2011
      John
      Thanks Bill! You are giving a great service to the public and we appreciate it. Last comment is that since I sold my house in Jan 2010 anc according to CP580A the bank can not sue us for the second mortgage right?
      0 Votes

    • 35x35
      Feb, 2011
      Bill
      Based on the facts presented and my interpretation of 580a, the bank has a limited time to file an action in California to recover the deficiency on the second. If the sale closed January 4 or sooner, you should be clear. However, that is based on the date of this answer, which is February 3. You did not mention the exact date of the sale, so you must add 30 days to your sale date to learn your date of freedom.
      0 Votes

  • 35x35
    Jan, 2011
    Jason
    Sorry, I may have written my question in a reply for another person's question. My wife and I bought our first home in Southern Califorina in 2007 for 500k with an 80/20 loan. The first was for 400k and the second was for the remaining 100k, neither have been refied so I'm sure they are both non-recourse. We are current on the first but are 2 months behind on the second. We just got a letter of intent to accellerate from BoA on the second with the threat of forclosure to begin on Feb 17th. A couple of questions: 1) I thought in CA they cant start to forclose until after 180 days, is this true? 2) Would the second truly choose to foreclose and either pay off the first or keep them current until a sale when the house is only worth 230k now? Similar foreclosed homes in my neighborhood and even on my block have been up for sale for 12-18 months now and I just dont see them doing it but I would like to know an educated opinion about this.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      1. As of June 15, 2009, 180 days must pass after the date of delinquency before the Notice of Delinquency (NOD) can be filed. See the Bills.com article California Mortgage Foreclosure Process to learn more.
      2. You are asking an economic question, which I cannot answer.

      I continue to be baffled by the behavior of mortgage servicers. It is easy to understand that as a group they would have slightly different standards and timetables for completing what should be routine tasks, but we are two-plus years into this crisis and we are still not seeing consistent behavior. My guess — note that word choice — is that the servicers are still overwhelmed by the volume of foreclosures and modification requests.

      Will your second foreclose when the property is upside down? Were the servicer and the investor that put up the money that went into your second rational, they would not on the assumption that the property will eventually rise in value again. However, if your home is in the central valley where home values have fallen into a black hole and whole neighborhoods are ghost towns, they may foreclose now hoping to minimize their losses. If your property is in a more urban area of California where prices have a better chance of rebounding sooner, then waiting is a better economic bet.

      0 Votes

  • 35x35
    Jan, 2011
    Robert
    Our First loan is for $540k and second HELOC loan is for 80K. A total of $620k and similar homes are selling for about $400k and we live in California. My wife and I have steady good jobs but we have decided the house is not worth keeping. We have decided to attempt to short sell the property and my concern is the HELOC loan. Are there cases were the Bank will forgive all or some of that amount. Is there anyway to get out of it?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      There is no one-size-fits-all answer to your question because the mortgage servicers and the investors who buy first mortgages and HELOCs are not behaving consistently. (At least not from an outsider's perspective.) My guess — note that word choice — is the mortgage servicers and investors will look at your household financial statements and decide if it is worth their while to pursue the deficiency balances. If you have higher than average income and assets, chances are they will drive a harder bargain than if you have lower earnings and savings. However, mortgage servicers are playing by their own rules, which are secret and probably change each quarter. Your best and only option is to start the process, and if the contracts the servicers present you are not to your liking either negotiate better terms or stop the process.
      0 Votes

    • 35x35
      Jan, 2011
      Robert
      When you say "or stop the process do you mean foreclosure?" Thank you for your reply.
      0 Votes

    • 35x35
      Jan, 2011
      Bill
      Thank you for the follow-up question, and apologies for my earlier unclear answer. I should have wrote, "start the short sale or deed-in-lieu-of-foreclosure process." One of the many problems with short sales and deeds in lieu is a lack of transparency. Homeowners do not know:
      • The qualification requirements for a short sale
      • The qualification requirements for a deed-in-lieu-of-foreclosure
      • Whether they have liability for the deficiency balance
      • The timeline
      • Whether they need to stay current on their payments during the process
      • Whether the servicer participates in any of the Making Home Affordable programs

      The mortgage servicers would go a long way to making both their jobs easier and setting their customer's expectations accurately if they were more transparent in their operations and customer communications.

      0 Votes

    • 35x35
      Jan, 2011
      Robert
      One last item. Currently, we are about 5 months behind on our mortgage on the big loan and about 1 on the HELOC. We don't pay our mortgage in full unfortunately. Ever since we got this loan/House and refinanced we have always fallen behind for example charging our property taxes on credit cards etc. Right now the Bank is considering us for a possible modification on the first loan. They always say it is in pending status and not foreclosure. It has been about 10 months now. Do you think we should wait to see what they offer us before starting the process for a short sale or foreclosure? I hear they only lower your monthly pymnts and not your total balance. That is why I think it is not worth keeping. Thank you for your valuable assistance.
      0 Votes

    • 35x35
      Jan, 2011
      Bill
      Most loan modifications simply extend the term to 40 years and reset the payment clock at zero. For some homeowners who want to stay in their homes, this type of deal is good enough. In areas where home prices are half of what they were at the peak and homeowners bought at that peak, and where their income has fallen, a 40-year term is a Band-Aid on a compound fracture. I do not mean to sound pessimistic, but it is possible though not likely that Bank of America will reduce your mortgage balance. If that occurs, then perhaps you can get a mortgage you can afford.
      0 Votes

  • 35x35
    Jan, 2011
    Lynda
    Bill, it's seems that you need to keep answering the same questions over and over again!! I thought for sure that I understood your post and that we were good to go, but now we are being hounded by PRS, a collection agency. We purchased a house in CA with an 80/20. The second was a HELOC that funded with the first. We never refinanced or used any of the funds for anything aside from the actual purchase of the home. We sold the home via short sale Nov 2010. PRS is saying we are still on the hook because the law only protects us if we had foreclosed. Aren't we good to go because of CCP 580b and SB 931 - CCP 580e? Or did we sell too soon to be protected by CCP 580e? Now what? What do we say to PRS?
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      I am assuming that SB 931 went into effect January 1, 2011. However, I have not read anything definite that it became effective at that date, and not in September 2010 when the governor signed SB 931 into law. Consult with a California attorney who has experience in property law to research this question.
      0 Votes

  • 35x35
    Dec, 2010
    Brian
    Bill, I was recently contacted by a third party collection agent regarding our HELOC. I informed him that our HELOC was a non-recourse loan as it was used for "purchase money." The collection agent informed me that the loan was a refi and that we were not protected. It turns out that at closing our HELOC loan was an ARM instead of a fixed rate loan. Our loan officer told us not to worry as they would redo the the paperwork to show the agreed rates. Well, this mistake by Wells Fargo shows we refinance a month after closing! Do we have any legal footing to fight this?
    0 Votes

    • 35x35
      Dec, 2010
      Bill
      You have a very good case if you can produce proof showing the sequence of events you described. I assume the property in question is situated in California. Consult with a California attorney who has experience either in civil litigation or real property law. My guess is your attorney will ask a court in your county for a declaratory judgment regarding the loan's status as a purchase money loan.
      0 Votes

    • 35x35
      Dec, 2010
      Eric
      Bill, I bought property in California with my brother in 2005. Three years later, I took over the property by getting a new 1st and 2nd loan to purchase the home in my name only. Are these loans considered non recourse loans?
      0 Votes

    • 35x35
      Dec, 2010
      Bill
      Eric, whether or not your loan is a recourse or non-recourse loan depends on the wording of your loan documents. It also depends on whether your taking over the property is considered a purchase. It is my opinion that because you were already on title, your loans of 2008 will not be viewed as purchase loans and will be viewed as recourse loans. Given the high stakes involved, I recommend that you have an attorney review your paperwork and render an authoritative opinion on your options.
      0 Votes

    • 35x35
      Jan, 2011
      tim
      my wife and i purchased a home in may 2006 in southern california. we did an 80/20 loan. we borrowed the 20% from my in-laws. the day after the loan closed we opened a heloc for 15% of the sale price and paid that money back to my in-laws. is this considered recourse or non-recourse. thanks
      0 Votes

    • 35x35
      Jan, 2011
      Bill
      Because your HELOC monies were not technically used to purchase your home, your HELOC will be viewed as a recourse loan.
      0 Votes

  • 35x35
    Dec, 2010
    Paul: Correct. However, SB 931, which is an anti-deficiency law for short sales, was signed into law in September 2010. The law, codified in California Civil 580e, becomes effective January 1, 2011.
    0 Votes

  • 35x35
    Dec, 2010
    Felipe
    In a previous question of Nov 2009 Sheila asked about the impact of HAMP on a non-recourse loan. My first mortgage is a non-recourse loan (California) and I applied for HAMP. How do I make sure that the bank will not do a refinance but instead a renegotiation of terms. Does the bank issue different documents for a refinance as opposed to a renegotiation? The bank has told me that if I don't qualify for HAMP then I could get an "internal modification", is the latter a refinance in disguise? Thanks!
    0 Votes

    • 35x35
      Dec, 2010
      Take the proposed modification to a California attorney who has experience in California's anti-deficiency law, and ask him or her to review the document with your question in mind. The toughest issue here is that I am unaware of any court cases that have discussed the modification issue. Until there is a precedent-setting case, we are all left to wonder if a modification is equivalent to a refinance. I believe strongly the two are not the same, but my opinion is meaningless unless and until a court agrees with me.
      0 Votes

  • 35x35
    Nov, 2010
    I've read through the list and still have a unique situation. Wife and I purchased new home in SoCal in 2005 $400K(1st)/$100K(2nd)/we covered about $20K in closing costs. 2nd was a HELOC. Both were purchase money originated with Duxford Financial and then sold to Chase, never refinanced and no cash out. In 2009 I was laid off and after several months did a short sale. The approval for the 1st stated "we will accept a minimum of #387,202 to settle your account and release the liens..." The approval for the 2nd stated "Chase Home Finance will agree to accept a short sale on the above account upon manager approval. Chase will agree to release its security interests in the above collateral upon receipt of $3,000...no more than $0.00 are given to [sellers]. This amount is for the release of Chase security interest only. The customer will still be responsible for all deficiency balances per the terms of the original loan documents and in accordance with applicable law. I was working out of the country trying to make just enough to support my family who had moved in with my in-laws. After the closing on 2/25/2010, I'm not getting collection calls from Allied International Credit Corp on behalf of Chase for my second even though I was told that the bank couldnt go after me for the 2nd in a short sale of a purchase money loan. I finally do have a high-paying job, but not working for 75% of last year and 25% of this year has left us with huge debts and no savings. Can you at least point me in the right direction with this? I would be so greatful!
    0 Votes

    • 35x35
      Nov, 2010
      Bill
      It is unfortunate you did not consult with a California attorney who had experience with California's anti-deficiency law before you signed Chase's agreement, because it bought you nothing if the second deed of trust or mortgage was purchase money. If the second was purchase money, California's anti-deficiency law is clear on this matter — lenders get one bite at the apple, and by foreclosing Chase got its bite. Consult with an attorney to learn if you have a cause of action against Chase for the terrible and one-sided contract you signed for the second, and if you can sue Allied International Credit Corp. for trying to collect on a deficiency balance that is uncollectable under California law.
      0 Votes

    • 35x35
      Dec, 2010
      Paul
      Actually, 580b only applies in a foreclosure. It does not apply to short sales, so even if both loans were purchase money protected, that protection was not triggered in the short sale. Unless the banks agree in writing to waive their deficiency rights, which the second did not, then the bank will retain that right, regardless of whether the loan would have been purchase money protected had it gone to foreclosure. At this point, Chase has the legal right to collect on the second.
      0 Votes

  • 35x35
    Nov, 2010
    Jeff
    My partner and I purchased a primary residence home in CA in Jan 2006 for $590K. We had a 80/10/10 interest-only loan where 10% was a HELOC and 10% was money we put down. We had to short-sale the property and it closed in Feb 2010 for $385K. During that time, we had to rent out the place for 2 years as we could not afford to stay in it. The original 1st loan and 2nd HELOC were never refi'd. Being in CA, it's my understanding that both are considered non-recourse loans. If that is the case, is it possible the lender would still send me a 1099-C in 2011? My understanding is that since it's a non-recourse loan that was secured by the sale of the property, there is no cancellation of debt per se. Is that correct? Thanks for your help!
    0 Votes

    • 35x35
      Nov, 2010
      Bill
      I would be surprised to learn California's anti-deficiency rule trumped federal law concerning the requirement of financial institutions to report forgiven income on a 1099-C.
      0 Votes

  • 35x35
    Oct, 2010
    Lindsay
    I have a condo in CA with 80/20 purchase money loans which have not been changed except for a "Rate Lock Cancellation" to the 2nd, which is a HELOC. The bank told me that the unlocking was only an amendment to the original HELOC and not a refi since no new contract was issued - so am I correct to assume both of those loans would still considered non-recourse? It doesn't seem like the unlocking of the rate would have material impact since it's still the same loan, but would really like to confirm. Also the original loans were for a primary residence, but we've had to rent it out during the past year. Does the rental do anything to the status of the loans or once a non-recourse, always a non-recourse (assuming the loans haven't been altered, refi'd, etc.)? Thank you very much for your help. Very helpful article and answers.
    0 Votes

    • 35x35
      Oct, 2010
      Bill
      If the HELOC was a purchase money loan, then the rate changing according to the loan contract would not change the purchase money characteristic. I have not seen any case law regarding a residence being converted into a rental where the creditor argued successfully that 580 would no longer apply. Consult with a California attorney experienced in real property and ask him or her to research this issue for you.
      0 Votes

  • 35x35
    Oct, 2010
    Mike
    How long does a lender have to pursue action on a foreclosed recourse loan? I had a house in California that was foreclosed on by the first. The 2nd was left with nothing. The 2nd was/is in the recourse category. I do not know when or if I will get notices of them trying to collect the recourse debt. Is there a time limit? I would hope there is but cannot find it anywhere.
    0 Votes

    • 35x35
      Oct, 2010
      Bill
      The California statute of limitations for collecting a deed of trust deficiency balance is either four years California Code of Civil Procedure § 337 or three months under § 337 and § 580a depending on the circumstances.
      0 Votes

  • 35x35
    Oct, 2010
    Bill
    The FHA Short Refinance Program cannot help you because you have an FHA loan. See Mortgage Foreclosure California for a list of options.
    0 Votes

  • 35x35
    Oct, 2010
    julie
    In 2008 I took out an FHA loan (California, never refinanced)for $144,000, my home's value has dropped to $75,000-90,000 range. Here is the problem, I can afford payments, but it has become increasingly obvious that the house needs some serious work in the tune of $30,000 + which i cannot afford. I don't qualify for relief programs because I am not really in trouble. All I can think about is walking away from the house and all of its problems, but I am worried that because it is FHA, they will eventually file a deficiency judgement. What are my options?
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    I have not discussed California's one-action rule on Bills.com because of its complexity and it is somewhat removed from the primary issue facing most California homeowners. Please see the California Lawyer article Foreclosures: California's One Action Rule.
    0 Votes

  • 35x35
    Aug, 2010
    John
    Hello Bill. Thanks for the quick reply. The case you cite (Simon v. Superior Court (Bank of America, NT & SA) (1992) 4 Cal.App.4th 63 , 5 Cal.Rptr.2d 428) does not involve purchase money. My situation involves a bank that provides a purchase money first and second, where I have refinanced the first with the original lender (thereby losing non-recourse protection on the first), but I have not refinanced the second. Is the second non-recourse? It would seem that if the bank forecloses on the first through a trustee's sale, the bank could not bring an action on the second because it would have elected its remedy and would not be a sold out junior (under the Simon case); however, if the bank judicially forecloses, could it then go back and bring an action on the second deed of trust (which was originally purchase money)? Your thoughts are most appreciated.
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    Soba: I am not aware of any case at the appellate level or higher in California that addresses your main issue, namely whether a modified mortgage falls under California's anti-deficiency rules. I have a personal opinion on how a court should decide this issue, but that and $5 will buy you latte. (Readers, please let me know if there are cases holding on this issue.) Regarding your other issues, bring the documents you have to a California attorney experienced in real estate law. He or she will be able to get copies from the county clerk and will interpret them for you.
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    John: The case I believe you seek is Simon v. Superior Court (Bank of America, NT & SA) (1992) 4 Cal.App.4th 63 , 5 Cal.Rptr.2d 428, which can be found at LawLink.
    0 Votes

  • 35x35
    Aug, 2010
    Soba
    Hello, Thanks in advance for your willingness to help people out. I have 4 questions. 1) My home is in CA and my first mortgage is with Wells Fargo. Never refinanced but loan was modified once in 2009 and interest rate reduced for 5yrs as a part of loan mod. Now going through loan mod again this month. Is this still be non-recourse 'cuase was bever re-fi'ed? 2)When I asked my bank for copies of title, deed etc they never sent. What are the docs I need to ask them and should i use RESPA for this? 3)How to read my loan docs to find which one is deed, which one is title , loan docs etc? 4)I have applied loan mod for my 2nd loan which is a heloc at the time of purchase. If loan mod goes through will it become recourse (assuming original was non-recourse). Please note home bought in feb 2007 and both loans are wells fargo
    0 Votes

  • 35x35
    Aug, 2010
    John
    Thanks for an informative article Bill. You seem to say categorically that a first and second (80/20) from the same lender is purchase money, and therefore non-recourse if not refinanced. Brown v Jensen is often cited as authority for the proposition that a purchase money second loan is non-recourse, but that case invovled a seller providing the second. Is there a case or statute that specifically states that a second loan made by the same lender who made the first loan, which second loan is made at the same time as the first (so that it is purchase money) is non-recourse under 580b? Please advise. Thanks.
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    Your being a trustee for another person's assets is irrelevant to your issues with the deficiency balances. See the Bills.com resource California Collection Laws to understand your rights and liabilities under California law. Also, consult with a California lawyer to understand your duties as a trustee.
    0 Votes

  • 35x35
    Jul, 2010
    Rick
    My wife and I purchase a home in 2005 for $525K here in CA. Our both 1st and 2nd loan was with WaMu at the time and it was a 80%-1st/10%-2nd/10%-down. A year later we refinanced our 1st loan with WaMu to get a lower rate and our 2nd WaMu loan was subordinated/approved through WaMu as well. There was no cash out. We had to short-sale the house this last May and now we are getting letters from collection agencies regarding the balance of the 2nd loan. I recently had to take over my father's liquid assets due to his deteriorating medical condition and my fear is if the lender could come after our personal assets now. What do you suggest? Thank you.
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    The key issue for you is whether the loans are "purchase money" loans. A purchase money loan is money funded by third party that goes straight into escrow and is used only for the purchase of the property. Under California law, whether the entity calls the loans mortgages, home equity loans, or something else is irrelevant if they were purchase money loans. I am curious why Wells Fargo funded a first and second as HELs. Consult with a California attorney who has experience in real estate or bankruptcy law. He or she will be able to review your loan contract in person and give you a more precise opinion.
    0 Votes

  • 35x35
    Jul, 2010
    Ben
    Great article and thank you for answering so many questions. My wife and I bought a condo in California for 275000 (80)/ 70000 (20). We bought through Wells Fargo and both appear to be Home Equity Loans. They are actually called SMARTFIT Home Equity Loans. We have never refinanced, and all the money was used to buy the property and nothing else. I understand that the 20% may be a recourse loan, but is it possible that the first loan, the 275000 loan, may also be a recourse loan?
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    Today, your property would be considered an investment property and none of the government programs designed to help homeowners apply. You do not mention if you are married. If you are, and if the spouse on the mortgage would occupy the property then you will have many more options. Regarding question No. 1, the devil is in the details. Each short sale contract is different, and the liabilities written into each vary. Take your short sale contract to an attorney who can advise you precisely. Regarding question No. 3, investment property owners have few options. If you are not occupying the property pursue a short sale or deed in lieu of foreclosure.
    0 Votes

  • 35x35
    Jun, 2010
    Lawrence
    I purchased a fixer-upper house in California in late-2006 with a 70% 1st, 10% 2nd and 20% Cash with the intention of doing a major remodel/building our dream house and moving in with my family. Since we already owned the house we were living in and the permits took nearly two years to obtain, I rented out the fixer house to a tenant but had a significant negative cash flow. In September 2008, my permits were ready to pull and I was approved for a construction/ take-out loan on the property. Unfortunately, the following month, my construction lender dissolved and I've been stuck ever since. I have now carried the negative cash flow for two additional years and I can't anymore. The company I work for slashed everyone's income by 40%+/- in 2009 and now I've exhausted my savings and maxed out all my credit cards and lines. To date, I been current on both loans and still have good credit (700+/-), but this may be the month I fall behind. I contacted my lender (both loans are with Bank of America- originally Countrywide) and the only way they will offer any modification is if I am occupying the property. All have have asked for is a 3-4 month forbearance which would spare my good credit long enough to either sell (probably a short sale) or improve my finances in order to hang on longer, but they have said that I would qualify for the forbearance if I occupied the property. I have three questions: (1) What are the consequences of a short sale or deed in lieu on a property that I have rented? (2) What if I move into the property- would it qualify for the forbearance or another modification or debt tax protection? (3) Do I have any other options? Thanks for your help.
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    If the second is not a purchase money loan, then it is not subject to California's anti-deficiency rule. If the second was a purchase money loan and there was no action taken by the creditor (no foreclosure), and the creditor sold the collection account to a third party, my interpretation of California's one-action rule would allow the third-party creditor to sue for the deficiency. However, I hasten to add a very important caveat: My research on this issue is not complete, and I expect California courts will be litigating this issue for the next few years. Consult with an attorney who has real estate experience before acting on this issue. I invite readers who have more information on this issue to comment below.
    0 Votes

  • 35x35
    Jun, 2010
    Carranza
    On a home were it's neither foreclosed or sold through a short-sale but the second is "Charged-off" on a non-recourse loan. Can the collection Agency sue the bor for the deficiency? Does the loan gain recourse at charge off with a collection company?
    0 Votes

  • 35x35
    May, 2010
    Bill
    Each state gives creditors the right to sue debtors (or not) following a foreclosure. California limits creditors to sue only in some situations, which I tried to describe above. I estimate it costs creditors a minimum of $10,000 to sue a debtor to collect on a deficiency balance. If a creditor were to ask me whether to sue a homeowner, I would first ask if they have a case -- is all of the documentation in order? Second, I would ask for an ROI on each particular case. It does not make sense to sue a party who has Social Security as their sole source of income. On the other hand, it may make sense to sue a party earning a six-figure income. However, I hasten to say I have not consulted with banks.
    0 Votes

  • 35x35
    May, 2010
    Eric
    Hi, thank for posting this article and discussion. It describes a situation very close to my own that I have been trying to find out more about. My wife and I bought our home in CA in 2005. Total, price was $700k, with a 1st mortgage for $560k and a second mortgage for $140k. (80/20). One year later, we refinanced the 2nd mortgage with a HELOC, and subsequently took out another $35k or so on the HELOC (mainly to pay existing credit cards). Today, the 1st mortgage is owned by Bank of America and the HELOC is owned by Wells Fargo. So, we owe a total of $560k to the first and $175k to the 2nd HELOC. The property is probably worth anywhere from $575k to $650k. If we keep current on the 1st but stop making payments to the HELOC, what recourse does the HELOC lender have? I understand the HELOC is probably a recourse. I want to believe that, at the lower property value estimates, the lender would agree they're not going to get anything even if they force a foreclosure, and would therefore be agreeable to perhaps a small payoff as a settlement (which I am okay with). However, at the higher valuations, there might be some money in it for them, so I wonder if they might be more aggressive and force the foreclosure. Based on what I've read on this site, it also does seem like it would be in their interest to sue and try to get more of it back. If you were the lender, what would you do? Is suing for the amount owed different than pursuing for deficiency? Does pursuing for deficiency only come after forcing foreclosure? What are some guidelines on how much it might cost a lender to follow through on a foreclosure? Thanks! this site is wonderfully informative.
    0 Votes

  • 35x35
    May, 2010
    Bill
    You are asking me to brief a case and tell me how it applies to your exact situation. I cannot provide legal advice. However, if you were to ask me if the California Supreme Court in Bank of America v. Graves found that if a junior and senior deed of trust were held by the same lender, that lender is barred from suing to try to recover the deficiency relating to the junior deed of trust. Consult with a California attorney, who will review your situation in detail and give you a precise answer to your question.
    0 Votes

  • 35x35
    May, 2010
    Brandon
    follow-up from - 05/18/2010 23:15 Does this case "Bank of America Nat'l Trust & Sav. Ass'n v. Graves (1996) 51 CA 4th 607, 611-613" mean the second, or junior lien holder is not barred from seeking recovery against me?
    0 Votes

  • 35x35
    May, 2010
    Bill
    The devil is in the details. If the two loans are indeed simultaneous, purchase-money loans, then the homeowner is protected by California's anti-deficiency law. If they are not simultaneous and the HELOC was not a purchase money loan, then it is not protected by California's anti-deficiency law. You cited a case decided by the California Supreme Court on this matter.
    0 Votes

  • 35x35
    May, 2010
    Brandon
    1st loan: 80%, 2nd loan 20%, heloc. Never refinanced. My buyer's closing statement showed a first and second loan. In fact, both loans were from Aegis, assuming the loans were a simultaneous close. Is the heloc, non-recourse? What does this mean - (Bank of America Nat'l Trust & Sav. Ass'n v. Graves (1996) 51 CA 4th 607, 611-613 ?
    0 Votes

  • 35x35
    May, 2010
    Bill
    The second is held by a separate investor. The second can hold its breath, stomp its feet and refuse to accept anything less than 100% of the balance due, if it chooses to ignore reality. In my experience, reasonable investors in second mortgages are happy to get something -- anything -- more than zero in a short sale. The alternative is a foreclosure where they will, in the situation you described, get zero thanks to California's anti-deficiency law.
    0 Votes

  • 35x35
    May, 2010
    MG
    My scenario: Bought a home in 2005: Purchase price: $475k. 1st loan with Wells Fargo of $379k, 2nd loan (at time of purchase) of $71k, $25k put down. I looked back at the closing paperwork and I see verbiage as follows: "[in reference to the 2nd loan from Wells Fargo]This transaction will occur simultaneously with the first mortgage" The committment letter lists the Pricing Program as "Simultaneous Close". Based on this, I'm assuming that it is a non-recourse loan. In the summer of 2007, I got relocated across the country due to job transfer. I put the house up for sale but there were no takers. So I put it up for rent and rented something for myself in my new location. After burning thru money for 3 years, I've got the primary to agree on a short sale. What can the 2nd do at this point to make my life painful?
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    The California Supreme Court in Union Bank v. Wendland, 54 Cal.App.3d 393, 126 Cal.Rptr. 549 (1976), held that a residential homeowner who refinances his or her original purchase money loan loses the §580b protection against deficiency liability. The California Supreme Court has not, to my knowledge, addressed the issue of whether refinancing and not removing equity matters in its analysis of whether the loan is recourse or non-recourse. In my opinion -- which really means nothing because I am not California judge -- the fact that equity is removed or not is an immaterial issue
    0 Votes

  • 35x35
    Apr, 2010
    Steven
    Situation-Purchased condo in CA in 2006 for $309,000. First loan for $247,900 5/1 ARM and the second loan was a HELOC of $46,400. Later refinanced the HELOC to a 15 year conventional at a lower interest rate but did NOT take any money out. It was simply to pay off the first loan and receive a lower rate. Question--is the second refinanced loan non-recourse or recourse? I am hoping it is non-recourse because it was originally a purchase money loan for a primary residence.
    0 Votes

  • 35x35
    Apr, 2010
    dutch.dough
    For investment properties, what are the consequential differences between a HELOC and a 2nd loan (amortized) in a foreclosure/shortsale situation? I understand HELOCs turn into consumer debt (unsecured debt) after foreclosure but does that apply to a 2nd loan (amortized) as well?
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    A junior mortgage or deed of trust is treated the same in a foreclosure or short sale regardless if it is a line of credit or a traditional mortgage loan. This is true for owner-occupied or investment properties.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    If there is a short sale, the answer to your question depends entirely on the details in the short sale agreement. Many short sale agreements forgive the deficiency balance. Some do not. Ask an attorney experienced in real estate law to review the short sale contract to get a precise answer in your case.
    0 Votes

  • 35x35
    Mar, 2010
    mildred
    just to clarify my question on re: my sister's estate - can the 1st mortgage after settling the short sale, still go after the balance that is difference between what was owed and what it sold for? my sister had a life insurance and the benefits were paid to her estate as she did not choose a beneficiary. i cant seem to get a response from the 2 probate lawyers that is handling her case. thanks for the response: my second question was for myself and not for the estate.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    There is no feudal, family debt in the US -- any debt an estate owes is a liability of the estate only and not the children or family members of the decedents. Regarding your second question, in general, yes. However, it would be unusual for an estate to declare bankruptcy. I urge you to consult with a California attorney who has experience in probating wills and trusts to answer your questions about the mortgage.
    0 Votes

  • 35x35
    Mar, 2010
    mildred
    In California: 2 questions 1) My sister and brother-in-law both died simultaneously in an accident. My sister owns the property and has refinance it in 2006 to now having 1st (IndyMac) and 2nd mortgage (GMAC). 2nd mortgage would settle for less amount and will not request for more money as any creditors in her estate. I am in probate court and has listed the property for short sale to get the probate to close. Can the 1st mortgage go after the Estate and my sister's kids? 2) Will bankruptcy discharge a second mortgage loan?
    0 Votes

  • 35x35
    Mar, 2010
    Obewan
    I have been reading these comments and I have never heard such sleazy loan deals in my life...by all parties involved. Teaser rates to entice home owners to refinance current mortgages.. so that they can legally be pursued for any debts incurred....this is absolute bull hockey. Any note on any hard property is based on the appraisal written on such property by the firm lending the actual money and controlling the market place via the lending institutions in charge of the money supply. No wonder we are all idots...no one can understand this cr#p...that we are calling the law!
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    I wrote an article recently discussing this topic in great detail I encourage you to read it. This article, Is My HELOC a Recourse or Non-Recourse Loan in California?, should answer your question.
    0 Votes

  • 35x35
    Mar, 2010
    Jason
    Im in calif...i had a purchase first and a heloc from countrywide...I refinaced for the exact same amount and terms...no money out ...not a dime..(overlay)..is this considered non-recourse....my atty thinks so
    0 Votes

  • 35x35
    Mar, 2010
    Christina
    Purchased home in CA in 2005 w/ a 80/20. The 20% was a HELOC only to cover the purchase price. Fast forward to 2006, refinanced the HELOC to a fixed equity loan with no additional money out. Short sale in 2009 with 1099-C from both lenders as expected. We've been told that on a non-recourse loan that box 5 should be checked as 'No' because it was the non-recourse, purchase money loan. I realize the second became a recourse loan, but when I have requested our first lender to correct 'box 5' the customer service rep asked if we refinanced either of the original loans and when I told her we kept the 80% loan with them and is original purchase but refi'd the second, she tells us that because we re'fid any part of the original loan that even the main 80% becomes recourse- despite never having refi'd that loan. Is this correct? Does refinancing a 2nd loan affect the non-recourse status of the first, purchase money loan?
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    Karen: My response assumes both spouses are California residents. Because California is a community property state, each spouse is responsible for their own and their spouse's debt regardless when the debt was incurred. (Student debt is handled slightly differently from the general rule in a divorce, but neither instance is at issue here but I mention it for the sake of being complete.) Whether the creditor will chose to pursue your spouse for any deficiency judgment is a different question. In my experience, most credit card creditors will not pursue a spouse for unpaid debt. A creditor trying to collect a deficiency judgment totaling hundreds of thousands may choose to be more aggressive. Regarding yoru second question, I believe you are referring to the California Mortgage Forgiveness Debt Relief act, which is parallel to the federal act of the same name. I do not see this applying to you unless the creditors forgive your mortgage debt. Regarding your bankruptcy question, if the creditors pursue you alone for the deficiency judgment, then you alone can file for bankruptcy. Consult with a California attorney who has experience in bankruptcy now, who will be able to review your situation in detail, and advise you accordingly.
    0 Votes

  • 35x35
    Mar, 2010
    Karen
    Refinanced home in 2005 w/ World Sav. as unmarried woman. Took out HELOC in April 2006 (still unmarried). Got married in Sept. 2006. I haven't had a paycheck since 9/09, so I'm unable to make 1st and 2nd payments. 2nd wants to foreclose. 1st states that I am not eligible to modify. Can they go after my husband for deficiency? What about Calif. debt relief tax? How much is my husband liable for? Don't want to file BK if I have to include my husband.
    0 Votes

  • 35x35
    Mar, 2010
    Andrea
    Thank you Bill! I really appreciate you shedding some light on this complex topic. Best, Andrea
    0 Votes

  • 35x35
    Mar, 2010
    Andrea
    Hi Bill, I bought a Condo in CA as my principal residence financed with BofA (335,000) as primary and a HELOC with Wells Fargo (54,000 as purchase money). A couple of years later I was able to pay 10,000 towards the HELOC and a year later I drew 10,000 from it. My condo is going into foreclosure any time now. Is my HELOC still non-recourse? I never refinanced either loan.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    If the HELOC was a purchase-money loan, and if the HELOC was never refinanced, then it is a non-recourse loan regardless of your payments or withdrawals on the loan.
    0 Votes

  • 35x35
    Mar, 2010
    Ofelia
    thank you for your very good information. i would not have peace of mind if i had not read your discussions on this matter. thank you for thorough and helpful advice and information. you are doing a good Samaritan work. God bless you and people like you.
    1 Votes

  • 35x35
    Mar, 2010
    Bill
    There are no short sale rules. Actually, there are short sale rules but each lender has their own short sale rules, which they are free to change at any time. Contact your loan servicer. Explain your situation. There may or may not be a requirement that the property in question need be your present residence.
    0 Votes

  • 35x35
    Mar, 2010
    Kim
    We purchased a home back in 2005 and still have the same loan. In the mean time it has reset and our mortgage payments have increased. We paid $465k for the house and it is probably now worth $275k at best. We lived in the home for 5 years. We then purchased another home and rent out this old home. We are trying to obtain a loan modification because we are so under water and our payments will continue to increase. As far as short sale rules apply can we consider this other residence to be a primary since it was for so long? I am trying to understand how the short sale rules apply to this home in the event we cannot get a loan modification done.
    0 Votes

  • 35x35
    Feb, 2010
    John
    Thank you for the guidance. How does one locate a suitable attorney in the San Francisco area? Friends who have consulted an attorney have had disappointing experiences. regards, john
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    1) I can find no case law regarding the status of a purchase money second deed of trust if the first was refinanced. Accordingly, I will not speculate one way or the other. Consult with a California attorney who can spend the time necessary to research this issue thoroughly. 2) Yes, the bank needs to operate according to California law, which limits creditors to "one-action." I have not discussed the one-action rule to date in an attempt to simplify the issues to common situations facing most California homeowners. Discussing the one-action rule is beyond the scope of the answer above. 3) From a legal perspective, the second can buy the interest of the first to preserve its rights. However, that would make no sense economically. Given the complexity of your situation, I urge you to consult with a California attorney experienced in real estate law.
    0 Votes

  • 35x35
    Feb, 2010
    John
    Bill - thank you for your help with these complicated matters. We are in the final stages of a loan modification of the first mortgage (960k). The purchase of the house was also financed with an 'equity reserve line of credit' (120k) -- this loan has never been refinanced. The house is now worth $850k max. 3 questions: 1. once we modify the first mortgage, does that affect that 'recourse' status of the 'second mortgage' in any way? In other words, even if the 'modification' of the first mortgage changed its status to 'recourse', does the 'second mortgage' retain its 'non-recourse status'? 2. If we default on the second and, assuming it is non-recourse, aren't the options of the bank limited? If the bank for the second mortgage foreclosed, the money ($850k max) will be less than the amount of the first mortgage ($960k), leaving nothing for the second mortgage bank. Isn't settlement the only option for the bank with the second mortgage in thsi instance?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    You raise an interesting question. § 580b reads in part, "...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." However, I can find no case law to support the statement in my answer above that suggests the property must be the owner's "primary" residence. It can be inferred from the language used in the statute that the owner must occupy the property in some capacity, but I was overreaching by using the term "primary," based on the case law I have found.

    Accordingly, I will edit the answer above. I invite further questions and comments to clarify the answer above.
    0 Votes

  • 35x35
    Feb, 2010
    Michael
    I saw in a prior response that you said California's purchase money anti-deficiency rule, CCP Section 580b, did not apply to a loan used to purchase a second home. I could not find a case discussing this issue. Do you know of a case stating that the word "occupied" in the statute should be read to mean occupied as a principal dwelling?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    GHS: I believe you are mistaken. However, each case has unique facts and before you apply my general analysis of your question to your specific circumstances, I urge you to consult with a California attorney who has experience with real estate or bankruptcy law.

    Under California Code of Civil Procedure §580b, residential borrowers are protected against deficiency liability on their original purchase money obligations, regardless of the method of foreclosure chosen by the lender (e.g., judicial or non-judicial). As mentioned above, if the purchase-money obligation is refinanced, then case law holds the anti-deficiency protection of §580b is lost thus exposing the homeowner to the potential of deficiency liability if the lender chooses to foreclose judicially.

    § 580d concerns deficiencies after a non-judicial foreclosure -- a privately conducted foreclosure not involving the courts. In Brown v. Jensen (1953) 41 Cal.2d 193, 195, "It has been held under [CCP § 726] that where the security has been exhausted or rendered valueless through no fault of the mortgagee, or beneficiary under a trust deed, an action may be brought on the debt on the theory that the limitation to the single action of foreclosure refers to the time the action is brought rather than when the trust deed was made, and that if the security is lost or has become valueless at the time the action is commenced, the debt is no longer secured." (Bank of America National Trust and Savings Assoc. v. Charles Graves et al) CCP § 580d blocks any post-nonjudicial foreclosure recoveries against a borrower. However, it does not prevent a non-purchase-money junior mortgagee from pursuing any remedy on the note without regard to the one-form-of-action limitation (CCP § 726), fair market value deficiency limitation (CCP § 726, 580a), and nonjudicial sale deficiency prohibitions (§580d).
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Dongcangllo: If the HELOC loan was taken subsequent to the purchase of the property, then it is not covered by California's anti-deficiency statute.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Gina: The status of the mortgage in question was discharged in the 2009 bankruptcy. Talk with your bankruptcy attorney about the debt included in your bankruptcy, and the status of each debt today.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Sabrina: Foreclosure is the judicial or non-judicial repossession of collateral for a loan that is in default. Foreclosure does not, like bankruptcy, extinguish or forgive a deficiency balance. If there is a deficiency balance resulting from a foreclosure -- and almost all do today -- this is an unsecured consumer debt. A bank can sell (in law this is called "assign") a collection account to a collection agent.
    0 Votes

  • 35x35
    Feb, 2010
    Sabrina
    Sorry to bug you again, but here's another HELOC question with the added bonus of credit report. Bought a house with 80/20 first/HELOC. Never refinanced or redrew on the HELOC. Talked to my broker who confirmed HELOC was taken at the same time and was purchase money. On my credit report the HELOC is showing as charged off bad debt by the GMAC and then by another company that they transfered the debt to AFTER the foreclosure took place. How is that possible?
    0 Votes

  • 35x35
    Feb, 2010
    Gina
    I have home in which I have been in for 14 years. I owe $187,000 on the first with Bank of America. I am 30 days late and have continued to make the payments, however I missed the November 2009 payment so it remains behind 30 days. In 2004 I took out a 55,000 HELOC. I have been making payments on time of between $150 - $250. In August of 2009 the HELOC re-amortized and payment is now $541 per month. I am behind 6 months. I submitted for a modification and received a letter of offer for 60 days, in where the offer will expire in the next 3 days. The offer is $404 per month and a fixed rate of 3.75% till 2027. In the mean time I have been reading about settlements of 2nd mortgages. I purchased 4 homes with the HELOC funds. I have a great job of 20 years and lost that in 2006, I lost my husband in 2001, my parents to murder in 2002 and my fiance in an accident in 2005. I apparently was not dealing with all that loss and as a consequence lost my health as well and have not worked since 2006. I do not want to lose my home, I have 3 schoolage children that depend on me. In 2008 I filed for bankruptcy and received a discharge in August of 2008. (Also lost all the homes.)I have received a letter of intent to foreclose from my second lien holder, CHASE, threatening to keep a close eye on the house for occupancy status. Reading your article I am confused about recourse and non recourse loans. Does CHASE have the right to foreclose even though the debt was discharged in 2009. What are my options. I would like to contact CHASE and talk about a settlement. I have a family memeber that will loan me $3500 to settle. However, the attorney who did my bankruptcy is charging $3500 to proceed. How can I position myself, what should I know, what department should I ask to speak with or what should I say to improve my chances of acquiring a cents on the dollar settlement as I have heard over and over? I am desperate and am afraid the the offer will go away if I do not respond within the 60 days. I have a montly income that would allow me to keep my home if I only have to make payments on the first. Please help.
    0 Votes

  • 35x35
    Feb, 2010
    dongcangllo
    We bought our primary residence California home in 2006 at $346,000 with countrywide, now BoA. Never refinance but got a HELOC at $28,000. We are deliquent for one year now, on trial modification but wasn't approve. If we are going to file a foreclosure, does it covers under deficiency or anti deficiency law? Thanks
    0 Votes

  • 35x35
    Jan, 2010
    ghs
    Bill, You've talked about the impact of CCP 580b, but nothing about CCP 580d. If a HELOC creditor is wiped off via a foreclosure by the 1st, then (in certain instances) they would be able to seek a deficiency because it is not a PMSI. However, in the instance where any secured creditor NON-JUDICIALLY forecloses, doesn't that bar any deficiency whatsoever, pursuant to Section 580d? Am I mistaken?
    0 Votes

  • 35x35
    Jan, 2010
    Loan
    Experience does count for something and shows here. This is great work, written from ground level by someone that has been there and actually done that.
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    Reread the above question-and-answer and comments to review the issue you face. As mentioned above, there is no clear case law that I have found to determine definitively whether a HELOC taken at the time of sale is covered by California's antideficiency statute. I think California homeowners with a HELOC taken at the time of sale have an argument that it does. However, my opinion and $5 gets you a cup of coffee. I realize my answer is not satisfactory, but there are some questions in law that the California courts have not answered.
    0 Votes

  • 35x35
    Jan, 2010
    Need
    I bought a property in CA as a principal residence with 80/20 loan. Never refinanced both. 2nd is a HELOC. Paid about 10K towards the HELOC during the first year and later drew about 8.5K for an emergency. Does the anti deficiency rule still apply in this case, if the home faces foreclosure.
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    I do not have a definitive answer for you because I could find no case law where the central issue in your question was decided. It is clear in the case law that 580b does not apply when a buyer intends to use the property for something other than a residence. You did intend to use the property as a residence and used it as such for almost three years. The antideficiency protection was in effect for that time. Whether it still applies to you today is unclear to me -- I am not saying it does or does not apply -- but I think your attorney will have an argument in your favor should this ever be litigated.
    0 Votes

  • 35x35
    Jan, 2010
    Gracie
    My property is in California. I bought doing an 80/20 in 2005 as a primary residence. For the last 3 months of 2008, it was a rental property and reported as such on Schedule E of my 1040. For 2009, it was a rental property and will be reported on Schedule E. (I made it a rental property to increase my cash flow by finding a cheaper place to live with roommates.) From purchase date in 2005 through the third quarter of 2008, it was a primary residence. Neither the 1st or 2nd loans have ever been re-financed. Does the character of the loan change from non-recourse to recourse due to converting it to a rental property? Thank you!
    0 Votes

    • 35x35
      May, 2011
      Concord
      Hi Gracie - did you ever get an answer to your question? We are in a similar situation where we lived in the house for 5 years then converted to a rental.
      0 Votes

  • 35x35
    Jan, 2010
    Bill
    The refinance of the mortgage moved the loan from being protected by California's antideficiency laws (Cal. Code Civ. Proc. §580b) to being unprotected by §580b. The fact there were home equity funds involved is irrelevant.
    0 Votes

  • 35x35
    Jan, 2010
    DANNY
    live in california-bought my condo for $235.00 refinanced 2nd loan to present interest only loan of $300.000 with no other home equity or 2nd loans. value at time on refinance $410.000 now value is around $260,000 plus sellers fees. Is there recourse on this loan since i refinanced this loan with home equity funds involved.
    0 Votes

  • 35x35
    Jan, 2010
    John
    Wow. That is frightening. I could understand if you took cash out. But if all you do is refinance to reduce your rate or get a new loan so the payment goes down because its a new 30-year repayment, it doesn't seem "fair" that it gets treated differently than the original loan that you bought the house with. I'm not doubting you at all. I just think its crazy. Makes all the sense in the world though--another reason for those solicitations you get to refi the loan. Thanks for the help.
    0 Votes

  • 35x35
    Dec, 2009
    N
    I appreciate your response Your Q & A forum is really helpful Merry Christmas and Happy New Year!
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    I recommend you ask your divorce attorney these questions. He or she will be able to review your situation in greater detail. Answer 1: You state that the HELOC was refinanced. If so, regardless of whether it started its life as a purchase money loan or not, the moment you refinanced the HELOC it became a recourse loan. Answer 2: To my knowledge, this issue is unsettled by the California courts. I would argue that by statute, a loan MODIFICATION changes the terms of the original loan, but does not change the parties to the agreement or the property in question. However, as I mentioned, that is just my opinion, and that and a couple of dollars will get you a cup of coffee. Answer 3: Yes, it does. See the IRS document The Mortgage Forgiveness Debt Relief Act and Debt Cancellation to learn more. Answer 4: The expected deficiency balance is an unsecured debt. See What Are My Debt Resolution Options? to understand your options for resolving an unsecured debt.
    0 Votes

  • 35x35
    Dec, 2009
    Hue
    Bill, I purchased property in CA 2006 at $663k. First loand $530.4k at 6% rate, 5/1 interest only with CW (now is BOA) . Second loan is Heloc 7.5% rate at $66.3k the same time, same lender CW. Read related question, I could say both are purchase money loan. One year later, I refinanced HELOC second loan to a better term rate fixed 10 yrs second mortgage at 7.5% interest and Loan Amount $65k. My fixed second loan was qualified loan modification and changed from 7.5% interest to 4.98% at loan amount $55k same term 10 yrs fixed. I have never cash out, owed less the second loan. The first loand is in active processing now.The lender BOA proposed me at 4% interest only for 5 yrs and convert back original interest only (added behind deliquent payments in principal loan amount) which I will not accept and not afford for. Since we are in divorced sittuation and I lost one income also. I read your articles, and related questions. My concern now is Q1. After refinance the second loan HELOC, it becomes a recourse loan, correct? Are there any phrase or terminology in docs that specificly tell me if my loan is non recourse loan or recourse loan? Q2. When loan modification work out the lender approved and I accepted, was it determined a refinanced loan also? Q3. Is The mortgage Debt Relieft Acts of 2007 applied for short sale also? Or just fore closed house? Q4. Your response to my questions would really help me for a coming decision in the worst case if I have recourse loan $55k plus creditor, then I should better claim for a bankruptcy
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    Yes. The California Supreme Court in Union Bank v. Wendland, 54 Cal.App.3d 393, 126 Cal.Rptr. 549 (1976), held that a residential homeowner who refinances his or her original purchase money loan loses the §580b protection against deficiency liability. Unfortunately, most California homeowners are unaware of the fact that refinancing destroys their anti-deficiency protection.
    0 Votes

    • 35x35
      Mar, 2011
      David
      Okay this seems to be our case- We purchased a home with an 80-10-10 loan of $749,500 from WF. All loans with the same lender. It was a 5/1 Arm and we were approved even though we had not sold our prior home- financed for 430,000 four years earlier with country wide. After the loans were signed and we had moved in- we finally completed our sale of the prior home. After completion of this sale we paid down a significant portion of one of these 10% loans. We still had access to these funds so we used them to remodel the home and to pay down some revolving credit balances. Now we are underwater by both of the 10% loans and another 90K on the original 80%- In total we are under 75K 75K and of the other 599K another 90-120K underwater- in total at least 240K. All of this happened in California- bay area. What challenges do I face as it applies to the recourse or not of the lender? They will not work with me on a modification because we are curerrent in our payments (We have exhausted all of our savings and built up more revolving credit trying to stay in good standing? Help! Please- Can we walk- and if we do will the bank come after us for what little we- have? Oh by the way, with this last loss of equity we are technically insolvent by more than 190K-
      0 Votes

    • 35x35
      Mar, 2011
      Bill
      A strategic default is your last option. You need to reduce your mortgage principal. Consider the FHA Short Refinance program, which is starting to gain momentum.
      0 Votes

  • 35x35
    Dec, 2009
    john
    Bill, if i refinance my California purchase money loan and do not take any cash out, does that make it a recourse loan? Thanks for the help.
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    Do not give up. Keep trying to find an attorney who can help you. There are many California attorneys with real estate experience looking for clients, and I am certain you will be able to find an attorney who can look at your contracts and deeds of trust and give you an educated guess about the status of your HELOC. When screening an attorney, ask if they have experience with foreclosure, deficiency judgments, and California's antideficiency rules.

    Update: The reader replied with the following to my suggestion to keep seeking an experienced attorney to review the deeds of trust: "I did get an attorney to say that because I took the 2 out at once and never drew more out on it or refinanced that I am probably protected. They do not make it easy. I appreciate the service you have provided."
    0 Votes

  • 35x35
    Dec, 2009
    Need
    I purchased a Ccndo in Northern California in 2004. First mortgage was fixed from Countrywide/BOFA at $325,000, 2nd is a HELOC from Wells Fargo at $57,000. I called Wells Fargo and they say it is not a purchase pay but I got it to buy the place at the same time as the other loan. I have never taken any money out on it. They are on 2 sepearte docs. Who else can I talk to see if this is truly a purchase pay? People are giving me all kinds of different advice and of the the 3 attorneys I talked to who were real estate attorneys none could speak to this. Help! I am not sure where to turn.
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    In my opinion, whether a HELOC is subject to California's antideficiency rules is dependent on the particular details surrounding the purchase of the property. In my opinion, if the first deed of trust and the deed of trust for the HELOC are created simultaneously, then I argue that both are purchase money loans and therefore subject to the antideficiency rules. However, I hasten to add that my observation is not legal advice. Here, you refinanced the second deed of trust, which made it a recourse loan regardless of its original pedigree. If you default on the second deed of trust/HELOC, the creditor has the legal right to foreclose on the property. If the value of the property is the same or less than the balance of the first deed of trust, the HELOC creditor can hold you personally liable for balance. This is an unsecured debt, and is treated the same as other unsecured debt such as credit card debt, medical bills, and so on. Regarding your question about BofA dangling a 5% rate in front of you as an inducement to make a false statement on your mortgage application, I urge to you consult with a California attorney experienced in consumer law. See National Association of Consumer Advocates to find one in your area. Ask the attorney if you have a cause of action under federal or California predatory lending laws.
    0 Votes

  • 35x35
    Nov, 2009
    Bernie
    In CA. Short sale of my condo. Purchased in 2005 for $310K. One loan for $217, second loan for $93K. Refinanced my second through BofA for a better rate and cash out of $10K which I used to remodel. Total HELOC of $103K (the $93K went straight to the second loan). My understanding is that when I refinanced the 2nd 580b no longer applies and I am personally liable for the entire HELOC? One other comment, BofA had me lie about my income to qualify me for this HELOC, do I have any legal recourse on this? I know I could have said no but when they dangled a 5% interest rate instead of the 9% I had on the second it was tough to be that ethical....Thanks for all your help!
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    I understand your frustration with the explanation in the article above. Unfortunately, the crucial details that determine whether a HELOC on a California deed of trust is recourse or non-recourse are evident only when examining the transaction. If the first deed of trust (the first "mortgage") and the HELOC occurred as a single transaction, then you and I would argue to a court that both are subject to the antideficiency statute. You may argue that the HELOC should be seen as a "second mortgage" with slightly unconventional repayment terms. Regardless of what you and I agree to, I urge you to consult with a California attorney who has experience in property law. An hour's worth of attorney's time is not cheap, but the advice you get will be more precise because he or she will be able to review all of the documents surrounding your home purchase in person.
    0 Votes

  • 35x35
    Nov, 2009
    Michelle
    This is a really helpful article - thank you. I have an 80/20 loan in CA that was 100% purchase money. However the second is structured as a HELOC, although I have never drawn from the account or refinanced in any way. Can you clarify how I can determine if the 2nd is non-recourse. You mentioned looking at the trust deeds. They are filed on the same day but are 2 separate documents. I don't see though how that could change the fact that it was still purchase money that without I could not have acquired the property. Any help here would be great. Thanks!
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    I recommend you reread the section "Recourse vs. Non-recourse Loans in California" in the article above to get a better understanding of the issue. Walk through the article to see if your first deed of trust and HELOC are a) "purchase money" loans, b) for a primary residence, c) not refinanced.

    If I understand your message correctly, neither loans are purchase money loans. Therefore, both are recourse loans under California law, which means that if you default the creditor has the legal right to collect the balance remaining on the loans from you personally. This is unsecured debt, which is like other consumer debt such as credit card or medical debt. See Collections Advice to see creditor's and debtor's rights regarding unsecured debt.
    0 Votes

  • 35x35
    Nov, 2009
    Jeff
    I purchased my home in California in 1975 for $38,000. Over the years I have refinanced 3-4 times each time taking out money. the lender has changed a few times also over the years. Mostly the funds were used for personal use, cars etc. Some was used to upgrade the property. The lender is now Bof A with a first of $365,000. The condo at one time worth $600,000 but is now worth about $350,000. I`am in my 4th month of non-payment. I have some contact with them but so far there has been no presure from them and not much response. I also have a HELOC for $265,000 which I started 7-8 Years ago and have continued to tap into. I have continued to pay on this loan(which is also with BofA,since the rate, currently at 3% is manageable, but eventually it will probably be going up. If BofA forcloses I will try to keep paying on the HELOC but obviously Im way upside down on the property. Is the HELOC (I assume) a recourse loan? If the lender forcloses and I keep paying on the HELOC will that just become a personal loan? If I stop paying on the HELOC before the forclosure what would they probably do? I`am 62 years old, maybe the best option unfortunately should be to file Bankruptacy.
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    Johnj, under the circumstances you described under California law, your home loans are recourse loans, which means that if you default the creditor has the legal right to collect the balance remaining on the loan from you personally. This is an unsecured debt, which is like other consumer debt such as credit card or medical debt. See Collections Advice to see creditor's and debtor's rights regarding unsecured debt.
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    Sheila, as stated in my answer above, refinancing a purchase-money loan on a primary residence converts the loan to a recourse loan in California. (Other states have different rules.) However, if the borrower and lender renegotiate the terms of a purchase money loan for a primary residence in California, the alteration of the terms between the original parties does not change the loan to a non-recourse loan. Take care that in practice the renegotiated loan is really that and not a refinanced loan.
    0 Votes

  • 35x35
    Nov, 2009
    johnJ
    I purchased my home in CA in 1999 for $330K. I then refinanced in 2001 and pulled money out for upgrading the home - new home loan $480K. In 2003, I refinanced again for a better interest rate (non adjustable). In 2006, I opened a home equity line of credit to upgrade again (build a pool, etc). My home equity line of credit is now at $248K. Total loans on home are totay about $718K. I am in good standing after loan modification with the first but cannot afford to pay home equity line of credit. If they foreclose (and the first consents) but the property doesn't sell for the full amount owed to both, can they pursue me personally with a judgement on future earning for the balance that will remain?
    0 Votes

  • 35x35
    Nov, 2009
    Sheila
    Does participation in the HAMP or a Refinance under the Obama Plan turn a non-recourse California purchase loan into a recourse loan?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    I am confused by the sequence of events and some of the facts in your question. I think what you are saying is that at some point in the past, your client purchased the house with a $1.4 million first deed of trust and a $400k second. Your client is now selling the property for a price less than $1.8 million in a short sale. It is my understanding that by definition, a short sale stipulates that the creditor will not pursue the borrower for the deficiency balance. I think the central issue in your question is "Can a borrower waive California's non-recourse rules?" It certainly appears that the creditor hopes it can make your client waive his or her non-recourse rights, if I am understanding your question correctly. Generally speaking, no, a California court will not recognize a waiver of a California consumer's anti-deficiency rights. This sounds like a bad deal, but I hasten to add that I may not be understanding your question or the facts correctly. I urge you to take these sale documents to an attorney experienced in property or bankruptcy law.
    0 Votes

  • 35x35
    Oct, 2009
    nicholas
    I am a broker here in san diego I am almost done with a short sale, my client bought the house for 1.8 million, a first of 1.4 million and second of 400k, both loans are purchase money, however the the set off closing documents the second is settled for 3000 but including the language that they will pursue the remaining 397 k as deficiency can they do that does this language turn the remainder into a recourse loan or is this a non-recourse loan by nature and can not be altered, the second has provided a letter saying the will settle for 3k , but it does not have a place for the borrower to sign it is just a template I don't want my client to be responsible for this deficiency
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    HAMP covers first mortgages/deeds of trust. It is unlikely a holder of the first mortgage is going to allow what is in effect a refinance that includes a second mortgage. That is not the intention of HAMP. Regarding the rest of your question, obviously, I don't know the entire situation here. I am unclear if the Chapter 7 in this situation discharges the second deed of trust. It would also be interesting to know if there is an SOL issue with the second deed of trust. Here's a thought -- offer the second deed of trust holder a lump-sum settlement of 5-10 cents on the dollar as a settlement agreement and release. That removes the second as an issue, cleans up the debtor's credit report, and creates a more favorable debt-to-income ratio for the debtor.
    0 Votes

  • 35x35
    Oct, 2009
    Joanne
    Borrower has 1st & 2nd (non purchase $), he defaults on both, files chapter 7, says he plans to keep property and intends to make payments to both 1st & 2nd. Credit report shows 2nd as a charge-off, doesn't attempt to forclose (no value left), does he have to payoff 2nd to get reconveyance? If he modifies first under HAMP, does the 2nd get addressed under 2MP?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    Can't answer for certain. In which state is the property in question? If the property is in California, reread the section "Recourse vs. Non-recourse Loans in California" in the article above to get a better understanding of the issue.
    0 Votes

  • 35x35
    Oct, 2009
    Dave
    Help request; I bought in 89 for 173,500, a few re-fis and 20 years later I have a !st for 495000, its now worth 300,00. I re-fied but have only the current single loan (1st), do they have "Recourse" for any remaining balance?
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    I recommend you reread the section "Recourse vs. Non-recourse Loans in California" in the article above to get a better understanding of the issue. Now let us look at your two scenarios: 1) The first and second mortgages may be non-recourse loans. Again, the California rules are tricky and I recommend you walk through the article above to see if both mortgages are a) "purchase money" loans, b) for a primary residence, c) not refinanced. 2) The mortgage in this scenario is almost certainly a recourse loan because it was refinanced. I recommend you consult with a California attorney experienced in property law issues, who can review all of your loan documents in person, and thus render a better opinion than my armchair analysis.
    0 Votes

  • 35x35
    Sep, 2009
    Anita
    Oops! Both located in CA. Thanks for your help.
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    Can't answer for certain. In which state are the properties?
    0 Votes

  • 35x35
    Sep, 2009
    Anita
    2 scenarios if you can help me confirm: 1- Bought a house for 600k. Loan 1 $400k, loan 2 $200k. Never refinanced. Home went into foreclosure. Both the loans are considered non-recourse right? 2- Bought a house for $300k, 1 Loan only for $300k. Couple years later, refinanced and took cash out. New loan is now $330k. Still 1 loan only. Home went into foreclosure, would this be considered a non recourse loan since there's only 1 loan ? Thank you.
    0 Votes