Is my sister's HELOC non-recourse?

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Submitted by Kat on October 31, 2008 - 11:13am

Hi everyone - I've been lurking here for several years. Rich and you all saved my husband and I from buying when we moved here in August 2006, and you have our eternal thanks!

I have a question to ask in behalf of my sister. She and her ex-husband bought a house in Orange County several years ago, taking out both a mortgage and a HELOC from WaMu to finance it. The HELOC was only used to purchase the house. She was told by at least two professionals involved in the transaction (but not real estate attorneys) that if the HELOC was only used to purchase the house, then it was a non-recourse loan in CA. (If it was used for other purposes, it would be a recourse loan.)

My sister subsequently went through a divorce and her ex stayed in the house, but the house was eventually foreclosed upon. The foreclosure was finished last February, but she just received a form letter from an out-of-state attorney in behalf of WaMu, saying that she was liable for the full amount of the HELOC, and they wanted to settle for 75% of the amount.

She is terribly worried, and I told her I would ask here for advice:

Is it true that her HELOC is non-recourse in CA?

Thank you!

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I AM NOT A LAWYER. That being
Submitted by urbanrealtor on October 31, 2008 - 12:15pm.

I AM NOT A LAWYER.

That being said, what I have been getting from attorneys that I have been talking to is that all purchase money loans are non-recourse and that anything that can be framed as being used for home improvement is arguably non-recourse. I am arguing that with my seller's lender right now.

He refi-d the place 1 year after buying and now it is 60% upside down. In other words, the loan to value is 220%. Since he used the funds to improve his place, I have been advised by counsel (real estate attys) that it is going to be very hard to categorize this as recourse debt like a credit card.

You should consult an attorney. I can recommend some if you like. As a non lawyer, it looks like it is non-recourse.

I have heard of this
Submitted by seattle-relo on October 31, 2008 - 4:05pm.

I have heard of this happening, in the cases that I heard about it's just a tactic to to try to collect some funds. Your sister should contact a real estate lawyer to represent her and write the bank a letter. Good Luck!

FYI - I'm not a lawyer either.

The loan is not recourse, but
Submitted by bubba99 on October 31, 2008 - 4:25pm.

The loan is not recourse, but that will not stop collection agencies from trying to collect, nor prevent "bad" marks on credit history.

Non-recourse only means that there is not a tax bill, and no legal remedy for the lender to collect. But the debt is not forgiven.

As a mortgage broker, not a
Submitted by bake on November 1, 2008 - 6:47am.

As a mortgage broker, not a lawyer, I agree with all of the above, if it was purchase money and not used for anything else, it is non-recourse.

In other words, the loan to
Submitted by bsrsharma on November 1, 2008 - 9:13am.

In other words, the loan to value is 220%

urbanrealtor,

Can you disclose the location (ZIP is fine)?

If the HELOC was essentially
Submitted by peterb on November 1, 2008 - 11:13am.

If the HELOC was essentially a second mortgage used to purchase the home, it should be considered part of the purchase money loan package. Purchase money loans are non-recourse in CA. By law, I believe.

agree with the above...if it
Submitted by kev374 on November 1, 2008 - 2:40pm.

agree with the above...if it is a loan associated with the initial purchase then it is non-recourse. If it is a refi later on to cash out then it is recourse.

bsrsharma wrote:In other
Submitted by urbanrealtor on November 1, 2008 - 3:30pm.

bsrsharma wrote:
In other words, the loan to value is 220%

urbanrealtor,

Can you disclose the location (ZIP is fine)?


92116 near adams and 30th.

Your sister should contact a
Submitted by j on November 1, 2008 - 3:37pm.

Your sister should contact a consumer reporter like the I-Team, if this HELOC really was used only for purchase money. This looks like harassment and WAMU does not have a case at all.

Either the laws have changed
Submitted by barnaby33 on November 1, 2008 - 5:17pm.

Either the laws have changed or I have become confused. It was my understanding that in CA, only a first mortgage was non-recourse. HELOCs and seconds are recourse loans, as well as re-fi's. Is that not true? Has the law on this changed recently?

I know that presnit Bush signed into law that the fed would no longer come after you with a tax bill for foreclosure related losses claimed by banks, but I don't think that changed the state law in any way.
Josh

It is not for first mortgages
Submitted by j on November 1, 2008 - 7:26pm.

It is not for first mortgages but Purchase loans, so a piggyback loan is non-recourse.

Thanks, everyone! I'll pass
Submitted by Kat on November 3, 2008 - 10:08am.

Thanks, everyone! I'll pass the info on to my sister!

Hi Kat - do you have an
Submitted by KKJ on March 31, 2009 - 8:57pm.

Hi Kat - do you have an update for us as to what happened to your sister? Did WaMu back off? I'm in a similar situation and would like to know what I'll be facing.