Is my second loan a recourse loan?

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Is an ARM that has already adjusted that is/was a purchase-money second mortgage a recourse loan in the state of California? The loan was never refinanced.

On top of that, if I decide to walk away, could I write myself a check for the available equity and keep walking w/o legal action being taken?

The combined LTV of the 1st/2nd is somewhere around 200%, there is equity available on the second one. It would just happen to push the equity further negative.

I live in California where some loans are protected by the california civil code against banks seeking a deficiency if you default. Like many in the country my wife and I bought a house at the height of the boom and were given an adjustable rate mortgage, however we were lucky enough to be able to refinance it into a fixed 30 year mortgage.

Recent life changes have made it where we are struggling to now make this payment and come the beginning of the year we will definitely no longer be able to afford it due to the birth of our 3rd child. Unfortunately it looks like we will have to let the house go back to the bank.

In looking at the loan paperwork I cannot find anything that states whether or not it is a recourse or nonrecourse loan.

Any help is greatly appreciated.

  1. Reply
    Steve D
    February 21, 2011 at 9:39 pm

    1) If the second was for purchasing the house (say an 80/20) then you should be okay.

    2) Writing yourself a check would probably be recourse and also fraud (I am amazed your bank hasn’t lowered your limit by now to bring it closer to 80 LTV) and may be considered a refinance making the entire second recourse. Without a doubt, the bank would take legal action the minute you wrote the check and stopped payment.

  2. Reply
    February 21, 2011 at 10:11 pm

    Wow. OK….

    How are you going to write yourself a check for the available equity? Why aren’t you just selling this place if there is equity in it? And you are not not walking away, it is a foreclosure, which has very serious, long term consequences.

    Consult with a tax accountant about the recourse status and what that means to you as far a taxable income and other implications.

  3. Reply
    February 21, 2011 at 10:27 pm

    Hi, all obligations signed personally are with recourse unless the note states that “THE DEBT CREATED HEREUNDER IS MADE ON A NON-RECOURSE BASIS” or similar language. A deficiency judgment is owing the balance of a mortgage after it is paid off in a foreclosure proceeding. If someone else bids in a price at foreclosure and meets the amount due the lender, there is no deficiency. If the lender takes the property because it does not sell, and then sells it for less than is owed, there is a deficiency. If state law prohibits the lender seeking the deficiency, then the lender writes this off, but they may attempt to collect it through a collections agency or such means, but not to take you to court for a judgment against you, if you pay it voluntarily you may. While you do owe it, you may not be compelled to pay it arising from any legal action. Since you did not pay the obligation as agreed your credit will reflect that. You mortgage is a note with full recourse. Only certain commercial loans or government loans for business purposes may be made on a non-recourse basis, such as to a corporation or limited liability company. Hope this helped you. Try to work it out first or get assistance for the new family addition. Good Luck.

  4. Reply
    Glenn S
    February 21, 2011 at 11:07 pm

    When you refinanced if you took money out then it is possible for the bank to get a deficiency judgment against you, but that is unlikely because the bank would have to go through a judicial foreclosure. Judicial foreclosures take longer, cost more, and give you the redemption right to buy the property from the purchaser at the foreclosure sale. In California if the lender does a “trustee sale” vs. judicial foreclosure there will not be a deficiency judgment.

    In California, a Purchase-Money Loan cannot have a deficiency judgment.

  5. Reply
    Ryan M
    February 22, 2011 at 12:08 am

    CA is a non-recourse STATE. Only 2nd mortgages are recourse loans in CA

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