patrick.net

are u underwater? If I was i would not refi, I would squat and let em foreclose. avg is now 3 years! add that up its huge $.

I've read different things on the subject... My broker said as long as you don't do a CASH OUT refinance or take out a HELOC, your loan will remain non-recourse.

Since your broker is so brimming with confidence, he or she would clearly have no problem signing a properly notarized document that essentially repeats in writing what I'm guessing you were told orally. And of course spells out some sort of consequences should their advice to you be proven incorrect, preferably binding on both the individual and the employer for whom they're acting as agent.

Or if that won't fly, (and I guarantee you it won't, but it would certainly be fun to propose for shits and giggles) request to have them add an addendum to the contract about this topic. Since it isn't mentioned anywhere in the document one way or the other I'd like to hear their reasoning for weaseling out of adding such an addendum. You could simply say that you would like to know what rights you have, and what duties you're obligating yourself to, under California law and are uncomfortable signing a document that does not spell these out in toto. Nothing unreasonable about a request like that, at least from where I'm sitting.

And as I understand contract law its just about impossible to use oral evidence that contradicts a contract's terms, or I guess in this case possibly a statute upon which the document is presumed to rest.

My $.02 and doubtless worth about half that. :)

PockyClipsNow says

are u underwater? If I was i would not refi, I would squat and let em foreclose. avg is now 3 years! add that up its huge $.

Yeah sure. Why not? You were not forced to buy?

Doesn't this vary from state to state?

I believe a refinance above the original loan purchase amount is excluded.

yeah verbal 'noises' do not hold up in court.

the broker will make whatever grunts and calls his species use to get you to sign a LEGALLY BINDING contract (the loan/refi app).

consult a RE attorney (but again he wont give you any promise in writing! more grunting and noises but you will pay to hear them).

My understanding is that the lender would have to do a judicial foreclosure to have recourse. If they execute a power of sale through non judicial foreclosure, they waive the right to collect a deficiency.

Got this info from a CA real estate attorney (grain of salt added)...

Under Cal. Code Civ. Pro. §§ 580b and 580d, a purchase money mortgage for a 1-4 family dwelling intended for occupancy by the purchaser is not subject to a deficiency judgment after foreclosure.

In plain English, if you purchase a single-family home as your principal residence, and the loan proceeds from any mortgage used to finance the purchase are paid to the seller in escrow at the time of purchase, then in the event of a foreclosure on that loan, the lender is barred from collecting on any portion of the unpaid loan balance.

Note: DO NOT take an FHA or VA loan, because the federal government is not subject to the California antideficiency Codes, and Uncle Sam can come after you, regardless of whether or not you have a purchase money mortgage.

(my understanding is that this is for primary first mortgages only. Refi's become recourse loans.)

But, if as @offroadjunkie is stating "any mortgage used to finance the purchase are paid to the seller in escrow at the time of purchase, then in the event of a foreclosure on that loan, the lender is barred from collecting on any portion of the unpaid loan balance."

The key phrase I see is "at the time of purchase" well I don't see where it states anything about loan or loans taken AFTER the time of purchase.

What about these people with various refinancings after purchase they do NOT go directly to the seller? Then what?

I am so glad in the past ten years I bought NOTHING. And owe NO mortgage.

E-man is correct as far as he went: "recourse or non-recourse doesn't really matter. You're protected by the one action rule so what's the beef?"
In CA, if the senior loan forecloses, judicial or not, the junior loans have not yet had their "one action." They basically become unsecured loans (like credit cards) because the collateral has been stripped away and sold to satisfy the senior debt. These junior loans frequently get packaged up in bad debt portfolios, bought by investors for 5 cents on the dollar. A couple years later they will come after you for the full debt plus fees and interest, but will usually settle for the amounts of any of your unused credit lines they find when they run your credit report.
However, being unsecured loans makes it easier to discharge them in a bankruptcy so don't forget to mention them to your BK attorney, in the event you are still within the statute of limitations to collect.

I would consult an active real estate or creditor rights/bankruptcy attorney on this. The purchase money loan used to be the only non-recourse loan, but it may well be that recent crises triggered a modification favorable to consumers on that issue a few years back.

Have to research this but it looks like refinancing in 2013 should be on my agenda. A law is in the works that will make refinancing non-recourse starting Jan. 1st, 2013:

The Insolvency Law Committee (“ILC”) has, for the past 7 years, sought to provide homeowners who have refinanced their mortgages the same protection against deficiency judgments following a judicial foreclosure that homeowners who have never refinanced enjoy under Code of Civil Procedure section 580b. With support from the California Banker’s Association, the California Association of Realtors, and input from the Center for Responsible Lending, the ILC produced a legislative proposal to amend section 580b that Senate Majority Leader Ellen M. Corbett introduced as SB 1069 on February 13, 2012 and amended to generate unanimous support. See the California Legislative Information site to read the amended bill. Senator Corbett and current ILC Co-Chair Robert G. Harris testified in favor of SB 1069 before the Senate Judiciary Committee on May 1, 2012. Video of the testimony is available online (the hearing on SB 1069 runs from 15:15 to 23:40). SB 1069 has now passed both the Assembly and the Senate and will go to Governor Brown for his signature.ntitled “Multiple Party Representation and Other Ethical Dilemmas.”

SB 1069, Corbett. Deficiency judgments.
Existing law provides that no deficiency judgment shall lie following a judicial foreclosure with respect to, among other things, a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of real property, or under a deed of trust or mortgage on a dwelling to secure repayment of a purchase money loan which was in fact used to pay all or part of the purchase price of that dwelling.
This bill would additionally provide that no deficiency judgment shall lie in any event on any loan, refinance, or other credit transaction that is used to refinance a purchase money loan, as defined, or subsequent refinances of a purchase money loan, except to the extent that the lender or creditor advances new principal which is not applied to any obligation owed or to be owed under the purchase money loan, or to fees, costs, or related expenses of the refinance. The bill would provide, for purposes of these provisions, that any payment of principal for a refinanced purchase money loan would be deemed to be applied first to the principal balance of the purchase money loan, and then to the remaining principal balance, as specified. The bill’s provisions would apply to a loan, refinance, or other credit transaction used to refinance a purchase money loan which is executed on or after January 1, 2013.

http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1069

Looks like that law may be changing in 2013... All non-cash out refinances may become non-recourse in 2013, the same as purchase money loans.

E-man says

Again, cash-out or non-cash out refi, recourse or non-recourse doesn't really matter to 99% of the population in CA if we're talking about the 1st loan. I was as confused as you about 9 months ago so I educated myself on this topic and talked to a couple of RE attorneys to clear things up.

Well here's a scenario.. What if an earthquake destroys my home. I still owe $350K on my refinanced mortgage.. I only have say $50K in equity. I decide to walk away and go rent even though i may be sitting on $50K in cash in the bank.

4-5 years go by and I save up money and my credit score is clean again.. I decide to buy a new home. What's to stop the original loan owner to sue me and try to take my new house from me since I walked away from a recourse loan 4-5 years prior that had been destroyed.

I would think that is something that could haunt you... I may be wrong though.

BBC,

Recourse means that the lender can sue you for the deficiency. In CA, if the lender forecloses your house, they have just exercised the "one action rule". Therefore, they cannot come after you for the deficiency.

So 1) sue for the deficiency, or 2) foreclose. Pick one. That's why they call it "one action rule."

With respect to your example, you just brought up another point for not paying off your mortgage. Say a property is worth $400k. You can borrow/finance $320k-$386k. Say an earthquake totally destroyed your house and you have no earthquake insurance, you can just mail the lender the keys and call it a day.

What if you paid off that property? Ouch. There are many instruments that yield greater than 4%. Why pay off that mortgage and take on that liability? Leave it to the bank. Your house goes up in value with inflation regardless if you have $14k or $400k of equity in it.

A 3% inflation yields $12k increase in your property value. That's about 85% return on $14k equity, but only 3% return on $400k equity. Does it make sense to pay off that mortgage? :0)

Home prices go down in value after a major earthquake. Can you pick up that $400k property in good condition for $320k after a major earthquake? Probably. What happened if your paid off house is destroyed after an earthquake? Uh....I guess you had just assumed all the risk by paying it off. :)

Ruki says

Shit, really? This is insane.

Why? If anything, it should force banks to be extra careful with their underwriting standards.

Ruki says

The best thing the government can do is pass a constitutional amendment banning such risk socializations across the board -- no more hurricane/earthquake federal last resort insurance, no more mortgage lending last resort functions, no more deposit insurance, etc.

That's a completely different issue that has nothing to do with recourse vs. non-recourse.

Well, most eathquake insurance deductibles are about 20% of home rebuild cost... So after you. Build over 20% equity it probably makes sense consider buying earthquake insurance. That way u are not assuming all the risk anymore.

My friend needs solid advice on this, Please help. E-man or anyone who is sure of the answer. He has two loans on the home and is ready to walk. the 2nd is a Heloc in which he did take some money out and 99% of it was not used to remodel the home. I'm in California and I understand the one action rule and imagine that BofA will take the home instead of going after him in court BUT, the loans were refinanced around 2004.

How does the refinance affect the loans? Recourse or not for 1st and 2nd? Can the banks come after him for the 2nd loan and/or force the homeowner into bankruptcy? Obtain judgement to attach wages ?

I appreciate any solid advice on this. Thank you!

Here is my take BigBadBank (the screen name I find ironic) is that your "friend" bought the place, took the loans two loans with the second being the infamous HELOC.

Your friend is in debt. Your friend owes the money he took to those who lent it to him. He (if a man) needs to man-up and face the music resulting from the consequences of his actions.

I don't know the details but if that musical theatre means foreclosure, payback, IRS, fines, jail or bankruptcy whatever the case may be someone has to be responsible for HIS ACTIONS and I can tell you one thing it is NOT going to be me my family or my wallet and/or and my tax dollars.

It appears this person your "friend" is looking for a way to walk away from responsibility and in my opinion he should not be looking for a free ride. He should be looking at obtaining a good lawyer and trying to work out how to man-up for his actions.

The joke of this is the seriousness asked for while this person in California has a HELOC with 99% in reserve??? Btw, where is that 99% of the HELOC money then?

My assumptions are that the house was refinanced in 2004 with a first and a HELOC. You say 99% of the value of the HELOC was not used to remodel or improve the house.

If there is a trustee sale on the first, the one action rule says that the lender cannot come back for a second bite of the apple and get a deficiency judgement. However, some debt buyers may still try to haul him into court even if they have no standing better than the original note holder.

If he has a HELOC and he has used it, the holder has an unsecured note and can proceed against your friend just as if it were unsecured credit card debt.

If the holder forgives the debt (ha ha) your friend should get a 1099 from the lender that says so. This will be considered income by the IRS. To the extent that the forgiven debt was used to improve or preserve the house, the IRS would not tax it. But, I think your friend has to be sure his foreclosure is completed before the end of 2012.

16 9:19am Mon 2 Jul 2012 Share Quote Permalink Like (1) Dislike Delete
BoomAndBustCycle says

Looks like that law may be changing in 2013... All non-cash out refinances may become non-recourse in 2013, the same as purchase money loans.

Again, cash-out or non-cash out refi, recourse or non-recourse doesn't really matter to 99% of the population in CA if we're talking about the 1st loan. I was as confused as you about 9 months ago so I educated myself on this topic and talked to a couple of RE attorneys to clear things up

So, what is the consensus if you have one loan in CA and you refinance it under Harp 2.0 with the servicer and now you have a new loan. Is your new loan non recourse or you should have waited till law changed in 2013 or whenever?

Thanks

I want to see the laws changed coast to coast to where anyone who takes out money against property they already have debt on with the main intention to just milk money out of the debt system and run are prosecuted, and fined with jail time.