My 25 years buying and selling California real estate tells me that:
The first is almost always non-recourse – the only exception I have run into is fraud.
The second is also non-recourse if it was:
1 purchase money
2 not a heloc (with caveats)
3 does not secure any other non-real estate items like tractors, horses, etc.
4 did not exceed the value of the transaction (money out at closing)
The item 2 caveat is that even if it was a HELOC, if no funds other than the purchase have been used, and the language in the contract does not specifically prohibit standard foreclosure, it may still be non-recourse.
If the house is foreclosed on, there is no 1099. There is no loan forgiveness, the foreclosure cancels the debt not forgives it.
If they renegotiate with the lender, and the lender “forgives” part of the loan as part of a third party sale for a reduced amount, the whole forgiven amount is 1099-ed.
The attorney must believe that the second is going to be forgiven, which is not part of a foreclosure, but another sale, or incentive for the owner to stay and keep paying.
“The lender is not limited to taking the property back and the borrower may be personally liable on the debt. If the lender chooses to foreclose using a trustee’s sale, then the lender waives the right to go after the borrower for the deficiency despite the fact that the loan was a recourse debt.”
