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Which states have non-recourse mortgages?

By Patrick   2012 Oct 30, 1:51am   20 links   11,027 views   19 comments   watch (0)   quote      

"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.

#housing

Comments 1-19 of 19     Last »

1   Tenpoundbass   971/972 = 99% civil   2012 Oct 30, 2:53am  ↑ like   ↓ dislike   quote    

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   311/311 = 100% civil   2012 Oct 30, 4:10am  ↑ like   ↓ dislike   quote    


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   2/2 = 100% civil   2012 Oct 30, 4:20am  ↑ like   ↓ dislike   quote    

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   542/542 = 100% civil   2012 Oct 30, 4:21am  ↑ like   ↓ dislike   quote    

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     2012 Oct 30, 4:30am  ↑ like   ↓ dislike   quote    

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   311/311 = 100% civil   2012 Oct 30, 6:19am  ↑ like   ↓ dislike   quote    

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   212/212 = 100% civil   2012 Oct 30, 6:40am  ↑ like   ↓ dislike   quote    

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   311/311 = 100% civil   2012 Oct 30, 10:33am  ↑ like   ↓ dislike   quote    

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   rootvg   6/6 = 100% civil   2012 Oct 30, 12:54pm  ↑ like   ↓ dislike   quote    

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.

10   Dan8267   2530/2562 = 98% civil   2012 Oct 30, 3:39pm  ↑ like   ↓ dislike   quote    


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

11   Dan8267   2530/2562 = 98% civil   2012 Oct 30, 3:42pm  ↑ like   ↓ dislike   quote    

So, Patrick's list - Florida + Oregon.

12   E-man   5/5 = 100% civil   2012 Oct 30, 4:05pm  ↑ like (1)   ↓ dislike   quote    

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.

13   SkyPirate     2012 Oct 31, 1:39am  ↑ like   ↓ dislike   quote    

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.

14   Dan8267   2530/2562 = 98% civil   2012 Nov 2, 2:20pm  ↑ like   ↓ dislike   quote    

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.

15   iwog   1498/1499 = 99% civil   2012 Nov 2, 3:31pm  ↑ like (1)   ↓ dislike   quote    

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.

16   Robe     2013 Feb 2, 8:36am  ↑ like (1)   ↓ dislike   quote    

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.?

17   TechGromit     2013 Feb 2, 9:06am  ↑ like   ↓ dislike   quote    

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.

18   E-man   5/5 = 100% civil   2013 Feb 3, 1:48am  ↑ like (1)   ↓ dislike   quote    

@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.

19   TechGromit     2013 Feb 3, 8:32am  ↑ like   ↓ dislike   quote    

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.

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