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.