Foreclosure in CA

[4runner]

A guy that I met at a dinner claimed that in California, mortgage lenders will not go after the personal assets of the borrowers during a property foreclosure. He said something about “one right of action” or the like, and that even mortgages that are labeled as “recourse debt” are, in effect, non-recourse debt…

Is this really true? When speculators lose money on real estate, they are really not personally liable for the remainder of the debt?

Aside from the issue of personal character, if there is no risk to your own personal assets (other than your credit report and forgiveness of indebtedness income), why not take out huge LTV loans and see where the market goes? It is not your money…

[bubba99]

California’s chattel mortgage law is such that at least on most purchase money first and seconds, there is no recourse. The lender does not need to go to court to foreclose, and cannot seize any property other than the real property secured by the trust deed. The exception is fraud.

If the borrower lied, deceived etc, the lender may come after personal assets. Plus many non-purchase money seconds, HELOC etc. do carry the risk of recourse beyond the underlying asset. Although these are secured by property, they also carry a personal liability on the part of the borrower. The loan was for a car or boat and for tax purposes was secured by real property and carries additional liability.

[Critter]

“It is not your money…”

It is exactly this sentiment that sets America back. Personal responsibility means you can live with yourself. Doing the right thing might sound trite, but it works.

Trying to justify your actions by saying “it’s not my money” is basically giving yourself a license to steal.

[BikeRider]

“It is not your money…” I hope to god that most Americans don’t start thinking this way or we’re all doomed. At what point in time did a lot of Americans stop taking responsiblity for their own actions? What they should do to people that do crap like you are saying is take them behind the wood shed and beat the tar out of them. I’m sure there are a lot of people that laugh all the way to the bank after screwing others over. Hopefully if there really is a supreme being those people will get their due.

[Critter]

I agree. BTW it doesn’t take a supreme being for them to get their due. Many people shun those who have ripped off “the system,” declared bankruptcy rather than stop spending, etc.

Then these thieves wonder where their friends have gone. I’d rather hang out with positive people who are fair and honest in their business and personal dealings.

[4runner]

Look- I’m not recommending that anyone walk away from a mortgage intentionally. As I said in my earlier post, it bespeaks a lack of character.

Instead, I’m amazed that California law is set up this way. There are other states where mortgages are recourse debt– the lenders get to go after a defaulting borrower’s other assets, in addition to the mortgaged property.

The California law is almost a risk-free invitation to gamble. It may have something to do with the speculative element of the real estate bubble, especially if the people doing the speculating are real estate professionals who undertsand the law.

[(former)FormerSanDiegan]

Non-recourse loans only apply to the person’s primary residence, and only applies to acquisition debt (i.e. the loan used to initially purchase the property). The lender can go after the borrowers other assets to cover the debt if the property is investment property or if the borrower refinanced (no longer the acqusition loan. If the borrower takes a cahs-out re-fi, they put their other assets at risk. The law intends to protect those who have purchased to put a roof over their head. IMO, a majority of the speculators, flippers, and gamblers likely are not sitting on their original loans on their personal residence.

[Author]

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