[quote=HLS][quote=sd_t2] a refinance at this point could trigger a very bad consequence…the refinanced balance would be a recourse loan, if the original loan used to buy the house, that is protected by the purchase money exemption and is thus nonrecourse.[/quote]

I do not belive that is correct… My understanding of current tax law, valid through Dec 31st 2012, is that refinance of any loan amount that was used to acquire and/or improve a primary residence remains exempt from becoming recourse debt…
It is true that any cash taken out over and above this amount MAY be considered taxable income (but it may not be enforced)
*Consult your tax adviser for your situation*

“Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681”

Refer to page 7, 3rd column, halfway down:
http://www.irs.gov/pub/irs-pdf/p4681.pdf ..HLS[/quote]

I think by “recourse” he meant that the lender could come after the borrower if there were a negative equity sale or repossession.

Edit: And it looks like somebody already posted that so sorry for the repetition.

Edit of the edit:
FSD, we are all taking it as legal advice and suing you when it does not work. Really it is a good thing to make people aware of. Thank you.