recourse and non-recourse clarification

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Submitted by kev374 on November 7, 2007 - 2:24pm

Just wanted to clarify this issue. I know if a borrower refinances an original loan the debt becomes a recourse loan. Is this only if there was a cash out as part of the refinance or does it also include situations where the refinance was only done to get a better rate.

I am thinking the majority of outstanding mortgages now are recourse debt since almost everyone has refinanced to a lower rate at least once.

Submitted by djrobsd on November 7, 2007 - 3:22pm.

Here's what the law says, California Civil Code... I hate trying to read the law, the laywer-worded laws are so difficult to interpret sometimes. From what I can tell, it says "balance of the purchase price" under a deed of trust. That means, even if you refinance, if they do it as a dead of trust again, and you don't finance a penny over the original purchase price, you might be protected, but I'm NOT A LAWYER SO DO NOT TAKE THIS AS LEGAL ADVICE, it's just my interpretation by reading. Perhaps a lawyer could clarify this for all of us?

580b. No deficiency judgment shall lie in any event after a sale of
real property or an estate for years therein for failure of the
purchaser to complete his or her contract of sale, or under a deed of
trust or mortgage given to the vendor to secure payment of the
balance of the purchase price of that real property or estate for
years therein, or under a deed of trust or mortgage on a dwelling for
not more than four families given to a lender to secure repayment of
a loan which was in fact used to pay all or part of the purchase
price of that dwelling occupied, entirely or in part, by the
purchaser.
Where both a chattel mortgage and a deed of trust or mortgage have
been given to secure payment of the balance of the combined purchase
price of both real and personal property, no deficiency judgment
shall lie at any time under any one thereof if no deficiency judgment
would lie under the deed of trust or mortgage on the real property
or estate for years therein.

580c. In all cases where existing deeds of trust or mortgages are
judicially foreclosed, unless a different amount is set up in the
mortgage or deed of trust, and in all cases of mortgages and deeds of
trust executed after this act takes effect, the mortgagor or trustor
may be required to pay only such amount as trustee's or attorney's
fees for processing the judicial foreclosure as the court may find
reasonable and also the actual cost of publishing, recording, mailing
and posting notices, litigation guarantee, and litigation cost of
suit.

580d. No judgment shall be rendered for any deficiency upon a note
secured by a deed of trust or mortgage upon real property or an
estate for years therein hereafter executed in any case in which the
real property or estate for years therein has been sold by the
mortgagee or trustee under power of sale contained in the mortgage or
deed of trust.
This section does not apply to any deed of trust, mortgage or
other lien given to secure the payment of bonds or other evidences of
indebtedness authorized or permitted to be issued by the
Commissioner of Corporations, or which is made by a public utility
subject to the Public Utilities Act (Part 1 (commencing with Section
201) of Division 1 of the Public Utilities Code).

Submitted by kev374 on November 7, 2007 - 4:07pm.

LOL!

In English please!!!

Submitted by ucodegen on November 7, 2007 - 4:16pm.

The law works on 'nits' (those nitpickers!!) This may be the clause that states that the refi is a recourse.

580b. No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

The refi is not the purchase. The money is being used to pay off the old loan. The nit being "purchase price" and whether that includes the action of purchasing. Another part might be last paragraph of section 580d. The refi is to secure payments to close out the previous mortgage(secure payment for)

This section does not apply to any deed of trust, mortgage or other lien given to secure the payment of bonds or other evidences of indebtedness authorized .

Submitted by SD Realtor on November 7, 2007 - 4:23pm.

I always was under the impression that any refi is always recourse regardless of what the money was used for...

Again, totally a speculative statement, not advice, not a CPA... just a grunt making a post.

SD Realtor

Submitted by DaCounselor on November 8, 2007 - 10:52am.

Refi's are typically recourse loans, but of course you have to look at the language in the loan docs to determine the terms. Purchase money loans are non-recourse despite any language in the loan docs that may suggest recourse is permitted. The Civil Code doesn't allow recourse on purchase money loans, including a HELOC taken out as the 20% of an 80/20 deal.

Submitted by Chance the Gardener on November 8, 2007 - 5:25pm.

Refi is not purchase money

Unequivocally, proceeds from a refinance loan are not purchase money. Lenders of purchase money are required to disclose the non-recourse nature of a loan in California. Refinance lenders are not required to inform you that refinancing forfeits your protection under Civil Code section 580b. Here is a link to a law professor's article calling for a correction to this problem. Note in the conclusion that the least likely to succeed solution is to extend 580b protection to borrowers who refinanced. http://works.bepress.com/cgi/viewcontent...

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