Which states have non-recourse mortgages?


By Patrick   Follow   Tue, 30 Oct 2012, 8:51am   5,374 views   20 comments
In Menlo Park CA 94025   Watch (0)   Share   Quote   Permalink   Like   Dislike  

"Non-recourse" means the bank cannot come after your personal assets when you default on your mortgage. They can take only the house, unless you refinanced and gave up your non-recourse status.

Here's an initial list of non-recourse states I found:

Alaska
Arizona
California
Connecticut
Florida
Idaho
Minnesota
North Carolina
North Dakota
Texas
Utah
Washington

Is this correct? If so, then most states seem to be recourse states.

Viewing Comments 1-20 of 20     Last »     See most liked comments

  1. CaptainShuddup


    Follow
    Befriend (1)
    855 threads
    11,005 comments

    1   9:53am Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    The lady that did our title search and stamps, told us the terms on our mortgage was one of the best she ever saw. Of course this was in the height of the "My God somebody do something!" phase of financial reform climate. She advised us not to ever refi. She said the odds that all of the provisions that was included in our mortgage to protect us, would not be included in a refi.

    No Late Fees
    Rate may never increase regardless of payment history
    Non recourse
    Just straight up either make the payments or get foreclosed. Which also had a more than fair amount months being late, before they can foreclose.

  2. BayArea


    Follow
    Befriend (3)
    57 threads
    400 comments
    Oakland, CA

    2   11:10am Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    They can take only the house, unless you refinanced and gave up your non-recourse status.

    Can someone elaborate on this? I've refinanced in CA. Refi closed on Jan 1, 2010 with Wells Fargo. Are you saying any refi in CA loses non-recourse status?

  3. pkennedy


    Follow
    Befriend (8)
    28 threads
    1,388 comments
    male

    3   11:20am Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    Any legal professional in any state will make sure you get a non recourse action I'm sure. If not, bankruptcy will get rid of it. I'm sure negotiating and/or having a lawyer involved will ensure you get the necessary protection as well. A simple "We're short selling this, you're accepting it as full payment mr bank, will you accept?"

  4. curious2


    Follow
    Befriend (4)
    115 threads
    4,345 comments

    4   11:21am Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    California can be complicated:

    http://www.avvo.com/legal-guides/ugc/california-residential-foreclosures--how-to-determine-whether-your-loan-is-non-recourse-or-you-will

    Also in some states the lender has a choice between quick non-recourse foreclosure and full recourse contract litigation. A rational self-interested lender would choose quick non-recourse foreclosure against a person who has no other assets besides the house, or full recourse litigation against a person who has other assets that can be seized. A sprawling TBTF bank, which is by definition too big to manage, will do whatever is in the interests of the individual executives and independent contractors making the decision, e.g. an aggressive foreclosure mill that profits from foreclosures will choose that route, and who knows if there might be kickbacks to the executives.

    There can also be tax implications:

    https://www.ftb.ca.gov/professionals/taxnews/2009/July/Article_9.shtml

    Also, in short sales, some lenders may try to sneak in a clause making the borrower personally liable. Borrower beware.

  5. EBGuy


    Follow
    Befriend
    5 threads
    2,483 comments

    5   11:30am Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    Are you saying any refi in CA loses non-recourse status?
    Short answer: Yes (although some will contest this if its with the same lender).
    But as curious2 pointed out, banks will almost always chose non-judicial foreclosure proceedings in CA. Because of the one action rule, banks can't come back for a deficiency judgement. Note that this does NOT apply to unsecured seconds or HELOCs.
    I've never (in my limited experience) seen a SFH that has gone the judicial foreclosure route. So practically speaking, the mortgage will effectively be foreclosed like it is non-recourse.

    IANAL. YMMV.

  6. BayArea


    Follow
    Befriend (3)
    57 threads
    400 comments
    Oakland, CA

    6   1:19pm Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    Interesting... ya, I don't think contract litigation would be too favorable for the banks in this case.

    Regarding the refi, I just spoke to someone at the IRS who indicated that typically a normal refi won't change the recourse status *unless* it's a cash-out refi (equity line of credit).

    I'm still not completely clear on how this plays a role when it comes to income tax of the debt relief. I guess that's where the Debt Forgiveness Act comes that I will have to read up on further.

  7. lostand confused


    Follow
    Befriend (9)
    481 threads
    3,010 comments

    7   1:40pm Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    I also heard that if you have a HELOC loan in CA, the bank can come after you for that portion of the loan?

  8. BayArea


    Follow
    Befriend (3)
    57 threads
    400 comments
    Oakland, CA

    8   5:33pm Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    lostand confused says

    I also heard that if you have a HELOC loan in CA, the bank can come after you for that portion of the loan?

    Apparently it depends...

  9. The Professor


    Follow
    Befriend (5)
    52 threads
    2,315 comments
    Premium

    9   6:45pm Tue 30 Oct 2012   Share   Quote   Permalink   Like (1)   Dislike  

    There is a special place for HELOC abusers.

  10. rootvg


    Follow
    Befriend (7)
    1 threads
    814 comments
    Danville, CA
    Premium

    10   7:54pm Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    lostand confused says

    I also heard that if you have a HELOC loan in CA, the bank can come after you for that portion of the loan?

    That is my understanding.

    You'd better never walk away from a house in Ohio. Those bastards will chase you to the end of the earth.

  11. Dan8267


    Follow
    Befriend (17)
    1,037 threads
    12,801 comments
    Boca Raton, FL

    11   10:39pm Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    Is this correct? If so, then most states seem to be recourse states.

    Most states are recourse states, but your list is a bit off. Florida is definitely a recourse state as many fool buyers are finding out.

    http://loans.org/mortgage/questions/difference-recourse-states

    http://www.bookofjoe.com/2011/11/strategic-default-and-nonrecourse-states.html

  12. Dan8267


    Follow
    Befriend (17)
    1,037 threads
    12,801 comments
    Boca Raton, FL

    12   10:42pm Tue 30 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    So, Patrick's list - Florida + Oregon.

  13. E-man


    Follow
    Befriend (29)
    34 threads
    1,058 comments

    13   11:05pm Tue 30 Oct 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Bay Area,

    Non-recourse means the bank cannot sue you and go after your assets regardless how much you're worth. Also, there is no tax consequences. If your house is short sold or foreclosed, you're not on the hook for the difference/deficiency.

    IIRC, the answer above from the IRS agent is correct provided it was a refinance with no cash-out.

    Recourse means the lender can sue you & go after your assets if you're a high networth individual. Also, you're on the hook for the deficiency, and there is tax consequences. Say you owed $500k on the house & it was sold for $300k. The IRS will consider you have $200k of earned income for that tax year not including your salary yet. This is not the case for a non-recourse loan. 2007 Debt Forgiveness Act was intended to forgive this "not" earned income as indicated above. You still get a 1099 from your lender for $200k, but it's not a taxable event.

    That's how I remember it when I read it in 2008. I'm not a CPA, but I know a little bit about the IRS tax code.

  14. SkyPirate


    Follow
    Befriend
    4 threads
    100 comments
    Atlanta, GA

    14   8:39am Wed 31 Oct 2012   Share   Quote   Permalink   Like   Dislike  

    Interesting. I thought the majority of states were non-recourse but clearly it's the opposite.

    Now the real question: When will banks start pursuing recourse? There is probably some statue of limitations and the wave of foreclosures have been going on for years... if they have any intention of doing this, shouldn't we start to see this now? They could even sell the claim to collections agencies.

  15. Dan8267


    Follow
    Befriend (17)
    1,037 threads
    12,801 comments
    Boca Raton, FL

    15   9:20pm Fri 2 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    SkyPirate says

    Interesting. I thought the majority of states were non-recourse but clearly it's the opposite.

    I don't think the vast majority of people even knew about non-recourse states before the bubble burst. Now that people know about them, the knowledge of that risk is going to decrease demand for housing especially on leverage.

  16. iwog


    Follow
    Befriend (46)
    375 threads
    19,939 comments
    47 male
    Lafayette, CA
    Premium

    16   10:31pm Fri 2 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    BayArea says

    Can someone elaborate on this? I've refinanced in CA. Refi closed on Jan 1, 2010 with Wells Fargo. Are you saying any refi in CA loses non-recourse status?

    California has an anti-deficiency statute for all liens against real property. The bank cannot collect the balance of the loan after a foreclosure.

  17. Robe


    Follow
    Befriend
    1 comments

    17   4:36pm Sat 2 Feb 2013   Share   Quote   Permalink   Like (2)   Dislike  

    I had two houses foreclosed in Texas in 2008 through bankruptcy judgements. Chase bank has been pursuing the second mortgage promisory notes past the statue of limitations period. Does this mean losing my nonrecoarse status makes me vulnerable to a forever deficiency judgement the bank has sold to collectors.?

  18. TechGromit


    Follow
    Befriend (6)
    86 threads
    979 comments
    45 male
    Egg Harbor City, NJ

    18   5:06pm Sat 2 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    E-man says

    Also, there is no tax consequences. If your house is short sold or foreclosed, you're not on the hook for the difference/deficiency.

    You might not be on the hook for the money the bank lent you, but your still on the hook for taxes on the "forgiven" debt.

    E-man says

    Also, there is no tax consequences.

    Maybe state taxes, but state laws do not extend to the federal level. So expect to pay federal taxes on forgiven debt. There was a temporary wavier issued by congress on forgiven debt, but this has since expired.

  19. E-man


    Follow
    Befriend (29)
    34 threads
    1,058 comments

    19   9:48am Sun 3 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    @TechGromit,

    The debt forgiveness was extended to 12/31/2013 so no federal taxes to pay. I believe the states will follow. Regardless, it's a huge tax bill that the underwater home loaners don't have to pay. That's a huge monkey off their back. That's the beautiful thing about this country, our system will always give people a second chance, then 3rd, then 4th..........

    Cheers.

  20. TechGromit


    Follow
    Befriend (6)
    86 threads
    979 comments
    45 male
    Egg Harbor City, NJ

    20   4:32pm Sun 3 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    E-man says

    That's the beautiful thing about this country, our system will always give people a second chance, then 3rd, then 4th..........

    I guess dodging obligations is no longer immoral, but perfectly legal too.

Premium member Patrick is moderator of this thread.

Email

Username

Watch comments by email
Home   Tips and Tricks   Questions or suggestions? Mail p@patrick.net   Thank you for your kind donations

Page took 119 milliseconds to create.