patrick.net

I think judicial foreclosure lets the bank sue you for the difference. conventional wisdom has suggests that the banks never do this because of the court costs involved.

I wouldn't be surprised if that changes with the amount losses banks are facing. Especially in cases with people who cn afford to pay through garnished wages.

Have you googled this subject? Lotsa stuff on it on the interweb.

Instead of making assumptions and wondering out loud about a very important legal concept, particularly in light of what is happening with housing currently, perhaps researching the law on your own or, better yet, consulting with a real estate lawyer would be a smart move. Taking tax advise from a CPA is smart, as is taking legal advice from a lawyer. Switching the two around??? Not so smart, unless you use a real estate/tax lawyer.

Also, one thing to keep in mind is that in California, if you refi or get a HELOC then that loan switches to recourse and since nearly every homeowner has done one of those two things they no longer have non-recourse loans and the banks can and should go after them.

As the government's emergency housing lifesupport are lifted, we may find us going into a double dip.
If the shadow inventory builds to a record backlog, we may find changes in the way recourse loans are dealt with. First, the reason banks don't go after many recourse loan defaulters is due to the one-action rule in CA. If the bank take judicial action, to sue the defaulter, the house cannot be sold for at least one year. Which in the past was very costly, with maintenance costs, insurance, taxes, so on. What happens if the shadow inventory made it impossible for the banks to unload the REO for a year or more anyway? Then, perhaps some hungry attorneys will offer to go after the strategic defaulters, those with good jobs and assets, for 50Cents on the dollar? Drastic times will change the outcome.

Another factor is state tax revenue. Forgiveness of a recourse loan results in tax liability for the defaulter. The state is in serious need not lose any source of tax revenue. Don't count on reenactment of AB 111 anytime soon.

Still waiting to see if we go into a double dip especially after the MBS are stopped and the tax credit. Also to see if this tax credit had pushed a lot of future buyers in buying sooner so we'll see less buyers out there in the months following April. There are many negative possibilities out there right now which doesn't make me want to buy unless I find a property that is at the right price. It would be insightful to find data on the amount of former owners who were still litigated after-the-fact for their non-recourse (in a non-recourse state in California that was never refinanced so should still be non-recourse), recourse loans, and those with a non-recourse 1st and 2nd recourse in California.

I still don't get it. How our lawmakers make this laws where if you rob a bank you go to jail but if walk out of your financial obligation and deprive the bank of the money you owe you have a happy life by getting another FHA loan in 3 years. Our system bound to fail one day if not tomorrow.

@dadab perhaps you should try and buy a home for 400K and sell it for 200K may help you better understand!

LiteraryWitNut says

@dadab perhaps you should try and buy a home for 400K and sell it for 200K may help you better understand!

That's is why I won't buy 400K if I can't afford in first place. I'd always consider all the possibilities(job loss, unexpected expenses etc.). My point was our politicians are scared that if they don't help these foolish buyers country will go down. Let him sell for 200K and walk with 200K obligation for life and give other first time buyers a chance to buy a home(without overextending) because the fool got his one chance already but he wasted it by keeping up with Joneses.

dadab says

That’s is why I won’t buy 400K if I can’t afford in first place. I’d always consider all the possibilities(job loss, unexpected expenses etc.). My point was our politicians are scared that if they don’t help these foolish buyers country will go down. Let him sell for 200K and walk with 200K obligation for life and give other first time buyers a chance to buy a home(without overextending) because the fool got his one chance already but he wasted it by keeping up with Joneses.

But, the other side of the coin is that the banks freely made these loans knowing that they were non-recourse. No one forced them to loan out the money to someone that most sane people could have guessed wouldn't be able to pay them back. They made a contract with certain terms. Why should we alter them because banks don't like them now?

tatupu70 says

dadab says

That’s is why I won’t buy 400K if I can’t afford in first place. I’d always consider all the possibilities(job loss, unexpected expenses etc.). My point was our politicians are scared that if they don’t help these foolish buyers country will go down. Let him sell for 200K and walk with 200K obligation for life and give other first time buyers a chance to buy a home(without overextending) because the fool got his one chance already but he wasted it by keeping up with Joneses.

But, the other side of the coin is that the banks freely made these loans knowing that they were non-recourse. No one forced them to loan out the money to someone that most sane people could have guessed wouldn’t be able to pay them back. They made a contract with certain terms. Why should we alter them because banks don’t like them now?

Agree but the money to help the bank or the troubled home owner should not come from Tax payer dollars!

dadab says

Agree but the money to help the bank or the troubled home owner should not come from Tax payer dollars!

Last word from the FED was that the US is actually profiting from the bank bailout. Now, granted, I don't think that they are including AIG in that assessment, but helping the banks didn't really cost much...

tatupu70 says

Last word from the FED was that the US is actually profiting from the bank bailout.

Believing the FED on anything related to the bailout of their bankster buddies is a stretch. Similar to seeing a cat with feathers in his mouth looking innocent at the dead bird.

Hahah! Yeah the Bear Stearns bailout finally they had to admit was a giant black hole. Like every other promise of a politician or bankster, it doesn't matter if it's true as long as it gets them what they want right now.

Californa makes it hard to pursue on non-recourse loans. Supposedly a non-judicial foreclosure precludes any further pursuit and this is overwhelmingly preferred. Why would they pick judicial unless it was millionaire defaults and they thought they had more assets they could pursue? Perhaps your friend is talking about walkaways in the jetset.

Here's a link to California loan laws:
http://www.forecloseddreams.com/california-foreclosure-law

dadab says

I still don’t get it. How our lawmakers make this laws where if you rob a bank you go to jail but if walk out of your financial obligation and deprive the bank of the money you owe you have a happy life by getting another FHA loan in 3 years. Our system bound to fail one day if not tomorrow.

Recourse loans were very popular in 1920's. They were used by predatory banks to seize a lot of farms. Unsophisticated farmers were then pursued to the ends of the earth for a giant loan balance on top of losing their farm. Thus these farmers had no incentive to contribute again anytime soon, get a new farm and start making some money the banks would just take it all.

Non-recourse loans actually make a lot more sense for society. It's a SIMPLE CONTRACT. If the buyer defaults he walks away with no overhanging debt but loses the collateral, down, and any equity of course. It is the job of the banker to do proper risk management and ensure the down payment is high enough and percentage of defaults still leaves them a profit margin. In this way defaults cleanse out the system faster, and we return to stability faster. The established standard of 20% is typically plenty to cover them even if the payer defaults very soon, so why was that risk management tool tossed out the window for about 5 years? Greed, pure and simple. A lot of bankers and mortgage jockeys and RealtWhores did a smash-n-grab because they wanted a lot of money RIGHT NOW and weren't planning to stick around for the long term.

The OP's question is a bit jackedknifed. No bank will go after a non-recourse loan for deficiency in CA.
It doesn't matter if you are Bill Gates with a 10 digit networth. If you meet the n-r criteria, such as primary residenc, purchase money, no re-fi, no fraud , no mod and so forth. You are protected by CA law, it is bulletproof.
The banks knows the rules of the game. They have teams of highly compensated RE lawyers. TIt would be like bonehead arithmetic to a math PHD.
It is the borrower, at least 95% of them, that knows nothing!
The recourse defaulters, thats a different story. They are getting a free ride, so far.

Vicente says

dadab says

I still don’t get it. How our lawmakers make this laws where if you rob a bank you go to jail but if walk out of your financial obligation and deprive the bank of the money you owe you have a happy life by getting another FHA loan in 3 years. Our system bound to fail one day if not tomorrow.

Recourse loans were very popular in 1920’s. They were used by predatory banks to seize a lot of farms. Unsophisticated farmers were then pursued to the ends of the earth for a giant loan balance on top of losing their farm. Thus these farmers had no incentive to contribute again anytime soon, get a new farm and start making some money the banks would just take it all.
Non-recourse loans actually make a lot more sense for society. It’s a SIMPLE CONTRACT. If the buyer defaults he walks away with no overhanging debt but loses the collateral, down, and any equity of course. It is the job of the banker to do proper risk management and ensure the down payment is high enough and percentage of defaults still leaves them a profit margin. In this way defaults cleanse out the system faster, and we return to stability faster. The established standard of 20% is typically plenty to cover them even if the payer defaults very soon, so why was that risk management tool tossed out the window for about 5 years? Greed, pure and simple. A lot of bankers and mortgage jockeys and RealtWhores did a smash-n-grab because they wanted a lot of money RIGHT NOW and weren’t planning to stick around for the long term.

Some how it is only banks faults does not jibe.

dadab says

Some how it is only banks faults does not jibe.

Who controls the money/credit/debt supply, the banksters or the homedebtors? It's difficult to see how it's anyone else!

Vicente says

dadab says

Some how it is only banks faults does not jibe.

Who controls the money/credit/debt supply, the banksters or the homedebtors? It’s difficult to see how it’s anyone else!

I can't agree with you more. It was banks fault for being greedy but home owner and realtors were greedy too.

Ah, but what if your are a wealthy flipper with 3 properties you were gambling on? Plenty of blood in the water for the lawyers there. Judicial foreclosure proceeding may give them a tasty chunk of meat.

Bankruptcy, insolvency?

kt says

Bankruptcy, insolvency?

Bankruptcy won't protect you if you have assets and/or ability to pay.