What are recourse loans?

The difference between recourse and non-recourse loans in California

A home loan or mortgage is secured by the property. A recourse loan is a loan under which the bank could both foreclosure AND sue the homeowner for the balance due (deficiency) that remained after a foreclosure was re-sold. In some states, short sales are also subject to deficiency judgments.

A non-recourse loan is one that prevents the bank from coming after the homeowner. The bank can take what is gets in a short sale or foreclosure and that is the final remedy.

The good news for San Diego homeowners:

In California, all home loans are non-recourse. On January 1, 2011, Senate Bill 931 removed the threat of deficiency proceedings from all home purchase loans. Then, on July 18, 2011, Senate Bill 458 extended the provisions to cover all junior liens in the short sale of a home.

Thus, if you short sale your house, you cannot be held liable for a deficiency. This is one of the benefits of a short sale vs a foreclosure. Following a foreclosure or the transfer of a home via a deed-in-lieu of foreclosure, a second lien holder can sue for the deficiency. There are, of course, many “if’s, and’s, and but’s” involved. For instance, second loans taken as part of the purchase are treated differently than are home equity lines of credit used for other purposes.

Before you consider allowing your home to go into foreclosure, check with an experienced real estate attorney to see where you stand.

SB 458 is good news for Californians considering the short sale of a home, but…

… it doesn’t remove the need for a strong negotiator on your side. Instead of demanding a deficiency payment, asset managers can now simply refuse to allow the short sale if they don’t get the dollars they want.

Homeowners still need a strong agent who will help them price the house to sell, market it well to attract a buyer, AND negotiate skillfully with the asset manager.

Tom Dunlap has both the skill and the experience to get your short sale sold and approved – so that you can get on with your life.

No two short sale situations are exactly alike. When you want advice that applies to your specific situation, click here to request a no-obligation consultation.

You can also reach us by calling 619-929-1413.


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.

What are deficiency judgments?

Deficiency judgments are legal obligations to pay after a court proceeding. They arise when a person fails to repay the entire amount due on a promissory note. This is, of course, common after the foreclosure of a home in today’s real estate climate, because foreclosed homes typically do not sell for enough to cover the mortgage loan balance at the time of default. The difference between what was owed and what was realized through the sale is called the deficiency.

Unless the (former) homeowner agrees to make payments on that deficiency, the bank can sue and obtain a judgment for up to the full amount owed. Then they’ll take steps to collect the debt through seizing bank accounts and other assets or by wage garnishment.

In some states, deficiency judgments can also result after a short sale. Fortunately for San Diego homeowners, deficiency judgments are something you don’t have to worry about after the short sale of a California home. This threat was removed via SB 931 and SB 458, both passed in 2011.

However…

The rules are not the same for foreclosure. If you have a second mortgage and the bank forecloses, you could be liable for a deficiency on the second mortgage unless it was made as a part of your purchase. In other words, if you took out a home equity line of credit at a later date, the bank will attempt to collect that debt.

Thus, you still do need a strong agent to negotiate for you – to assure that the short sale of your San Diego home does close.

As you might expect, second lien holders are sometimes reluctant to cooperate with a short sale when they stand to gain more through a foreclosure.

Even if you have only a first mortgage… Since they can’t ask for a deficiency payment, asset managers are now pushing harder for higher selling prices and/or lump sum payments from purchasers. Without a strong negotiator on your side, your home could go into foreclosure even with a buyer standing by, ready to purchase.

Our specialists stand ready to help you avoid foreclosure – just as we’ve helped hundreds of other San Diego homeowners. So reach out today…

Every short sale situation is different. If you’d like specific answers that relate to your situation, call 619-929-1413 or write td@tomdunlap.com to arrange for a no-obligation consultation.


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.

Can I Short Sale My Vacation Home or Second Home?

Don’t let uninformed agents tell you what you can’t do.
In San Diego County, a number of homeowners own more than one property. During the current economic climate, many find themselves needing to work out a short sale of a second home.

A Common Short Sale Myth: You cannot get a short sale approved on a second home, vacation home, or rental property.

The Fact: Of course you can. Second homes, vacation homes, and rentals can all be sold as short sales. Further, all residential properties of up to 4 units are now covered by the California laws preventing banks from suing for deficiencies after a short sale – whether or not they are owner occupied.

The real issue regarding the non-owner occupied short sale is the income tax implications. You need the advice of a good tax planner when you are thinking of a short sale on a vacation home or residential rental.

Good planning and expert negotiation are the keys to a beneficial outcome.

If you have a second home or income property and need to short sell, you need good advice. Call 619-929-1413 or write td@tomdunlap.com to tell us your situation and get answers that apply to your specific situation.

Tom Dunlap will be pleased to answer your questions and explain how the real estate short sale process works with regard to your second home or residential investment real estate.


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.

Failed loan modifications – 3 stories and a warning

No One Needs This Kind of “Help”

Chris Serres, in a Star Tribune article, reported these stories of homeowners who were offered help – or promised help – and are far worse off for their efforts.

The nightmare begins with the first contact, when homeowners learn that they must first stop making their mortgage payments.

* If you’re now attempting a loan modification and being put through a wringer,call 619-929-1413 or write td@tomdunlap.com. We can answer your questions, offer you insight as to your chances of success, and advise you on what to do next to avoid foreclosure.

The Weddles

”Patti, 51, and Scott Weddle, 57, of Harris, Minn., were ecstatic when J.P. Morgan Chase offered in November 2009 to cut their monthly mortgage payments by about 20 percent under a trial modification. Patti was out of work with a neck and back injury, and the Weddles were having difficulty making ends meet.”

“Nearly a year later, the Weddles were told that their application for a permanent modification was denied and that they would have to pay $24,228 to bring their mortgage current and avoid foreclosure.”

”The Weddles insist the demand came as a shock, because they had made all their payments on time under the trial modification. “We did everything that was asked of us, and it only pushed us deeper in the hole,” Patti Weddle said.”

”When the Weddles got turned down for permanent relief under HAMP, they decided to stop making their monthly payments. They expect to receive foreclosure papers any day and most of their belongings are packed. “If we had $24,000 lying around, then we wouldn’t have sought help to begin with,” Patti Weddle said.”

Paula Viehman

“Paula Viehman, 60, recalls the day she was approved for a trial modification in June 2009. After a 30-minute conversation, a CitiMortgage representative agreed to cut her monthly payment by half to $929. “It was the answer to my prayers,” said Viehman, a state employee who lives in Minneapolis.”

”Fifteen months later, CitiMortgage sent two letters claiming she was in default on her mortgage and owed $13,569 in back payments, late fees and other charges. When Viehman called to complain, she learned that CitiMortgage had denied her application for permanent relief under HAMP, though the bank had never notified her.”

”Viehman refuses to make the lump-sum payment, largely on principle, because that would mean accepting Citi-Mortgage’s claim that she’s in default. Though she continues to make monthly mortgage payments, she suspects the bank will eventually foreclose on the house where she’s lived for 25 years.”

“The longer I go through this, the madder I get,” she said. “I did everything they asked and more.”

”Citigroup, CitiMortgage’s parent company, declined to comment about Viehman’s complaints because of privacy concerns. However, in a written statement, the bank said the original terms of a mortgage remain in place during a trial modification.

Borrowers only receive relief from delinquent payments if they get permanent modifications.”

And of course, the banks claim that homeowners have fair warning via the paperwork they sign.

Lynda Devine

”Lynda Devine, 49, of Faribault, said she had not even heard of HAMP until she called her mortgage servicer, Aurora Loan Services of Colorado, about a routine matter. While on hold, she found herself listening to a recorded message that said she might qualify for HAMP. She checked it out and learned it was a program sponsored by the Obama administration. “It all seemed very legit,” she said.”

”Aurora agreed to cut her monthly payment to $1,400 from $2,000 under a trial modification. But Devine, a children’s mental health social worker and waitress, soon found herself mired in a bureaucratic nightmare. As she sought permanent relief, Aurora kept asking for the same documents — including bank and tax statements. Devine estimates she has faxed documents to Aurora more than 60 times.”

”Nonetheless, she received notice in July that she was in default. Soon after, she got a letter from Aurora’s law firm saying she would have to come up with $13,496 or face foreclosure. Devine couldn’t stomach the idea of losing her 1920s-era farmhouse and her 35 acres, where she keeps three beloved horses.”

”Devine borrowed against her truck and horse trailer to pay the $13,496, but she’s considering suing Aurora to get the money back.”

These stories are but the tip of the iceberg…

Carl Christensen, a Minneapolis real estate attorney, told writer Chris Serres that he gets 15 calls per week from shocked borrowers who thought a loan modification was going to allow them to keep their homes.

To quote Mr. Christensen: “The banks put out their hand and say, ‘We’re going to help you,’ and then stab people right in the back.”

To some homeowners, it seems as if the banks are simply coercing people into making a year or more of extra payments before seizing their homes.

The warning:

If you want to attempt a loan modification, be careful. Don’t proceed on what someone tells you over the phone. Instead, read every word of the paperwork they send you, and if you don’t understand even one sentence, get help. Seek out a qualified real estate attorney and find out what you’re signing before you get in over your head.

If you want to discuss your options, call 619-929-1413 or write td@tomdunlap.com. We’ll be happy to share our knowledge of the bank’s guidelines regarding loan modifications. We’ll also answer your specific questions about short sales.


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.