Recourse vs nonrecourse loans

[lonestar2000]

Since so many have asked about the difference between a recourse and nonrecouse loans, and the implications of a recourse loan, here is a snippet I stole from Mish’ site (about half way down this page http://globaleconomicanalysis.blogspot.com/2008/04/walking-away-next-mortgage-crisis.html):

California Attorney Chimes In

I have been in communication with “HCL”, a California attorney over real estate law in California. HCL writes:

As a California real estate attorney I can tell you this:

1) Mortgage debt, whether it’s a first or second loan, is nonrecourse if it is “purchase money”, used initially to purchase the property;

2) Mortgage debt that exists due to a refinancing and/or to second loan taken out after purchase is recourse, but — and it’s a BIG but — only if the lender elects to file a lawsuit for judicial foreclosure rather than going through the usual foreclosure process;

3) Suits for judicial foreclosure are in my experience of 28 years extremely rare, due mostly to the fact that any buyer at a judicial foreclosure sale has to give the foreclosed-upon party a full year to redeem the property. This of course is a complete deal-killer.

An interesting side-note: California’s anti-deficiency law originated during the Depression years, in order to place the burden of properly valuing real property and risk of loss on lenders (who presumably were more sophisticated and able to assess value) rather than buyers. Fast-forward to now, when it turns out that rampant greed prevented lenders from acting rationally in their own self interest. Now they are paying the price with walk-aways and “jingle mail”.

[Eugene]

I think there’s a piece of the picture missing here. In the event of a foreclosure, any recourse loans (e.g. HELOC) that aren’t paid off from foreclosure proceedings become unsecured. You still have to pay them, and they can bite you if you don’t.

[Eugene]

I think there’s a piece of the picture missing here. In the event of a foreclosure, any recourse loans (e.g. HELOC) that aren’t paid off from foreclosure proceedings become unsecured. You still have to pay them, and they can bite you if you don’t.

[Eugene]

I think there’s a piece of the picture missing here. In the event of a foreclosure, any recourse loans (e.g. HELOC) that aren’t paid off from foreclosure proceedings become unsecured. You still have to pay them, and they can bite you if you don’t.

[Eugene]

I think there’s a piece of the picture missing here. In the event of a foreclosure, any recourse loans (e.g. HELOC) that aren’t paid off from foreclosure proceedings become unsecured. You still have to pay them, and they can bite you if you don’t.

[Eugene]

I think there’s a piece of the picture missing here. In the event of a foreclosure, any recourse loans (e.g. HELOC) that aren’t paid off from foreclosure proceedings become unsecured. You still have to pay them, and they can bite you if you don’t.

[SD Realtor]

Agreed with Esmith with the following caviot. I have seen different cases with helocs as they are applied to short sales. In case 1 I have seen the lender inform the seller that they will allow the short sale under the condition that any deficiency does indeed become an unsecured loan. That decision is backed up with paperwork that accompanies the release of lien letter and is so stated. This is exactly what you have posted E.

Yet I have also seen the “nicer” lien release letter where the lender does not demand that the deficiency becomes an unsecured loan. I guess different lenders have different criteria on that sort of decision.

Also, and attorneys (DaCounselor) may be able to answer this. Is there any time limit on an unsecured note if there is no attempt made by the lender to retrieve the deficiency after x years?

[SD Realtor]

Agreed with Esmith with the following caviot. I have seen different cases with helocs as they are applied to short sales. In case 1 I have seen the lender inform the seller that they will allow the short sale under the condition that any deficiency does indeed become an unsecured loan. That decision is backed up with paperwork that accompanies the release of lien letter and is so stated. This is exactly what you have posted E.

Yet I have also seen the “nicer” lien release letter where the lender does not demand that the deficiency becomes an unsecured loan. I guess different lenders have different criteria on that sort of decision.

Also, and attorneys (DaCounselor) may be able to answer this. Is there any time limit on an unsecured note if there is no attempt made by the lender to retrieve the deficiency after x years?

[SD Realtor]

Agreed with Esmith with the following caviot. I have seen different cases with helocs as they are applied to short sales. In case 1 I have seen the lender inform the seller that they will allow the short sale under the condition that any deficiency does indeed become an unsecured loan. That decision is backed up with paperwork that accompanies the release of lien letter and is so stated. This is exactly what you have posted E.

Yet I have also seen the “nicer” lien release letter where the lender does not demand that the deficiency becomes an unsecured loan. I guess different lenders have different criteria on that sort of decision.

Also, and attorneys (DaCounselor) may be able to answer this. Is there any time limit on an unsecured note if there is no attempt made by the lender to retrieve the deficiency after x years?

[SD Realtor]

Agreed with Esmith with the following caviot. I have seen different cases with helocs as they are applied to short sales. In case 1 I have seen the lender inform the seller that they will allow the short sale under the condition that any deficiency does indeed become an unsecured loan. That decision is backed up with paperwork that accompanies the release of lien letter and is so stated. This is exactly what you have posted E.

Yet I have also seen the “nicer” lien release letter where the lender does not demand that the deficiency becomes an unsecured loan. I guess different lenders have different criteria on that sort of decision.

Also, and attorneys (DaCounselor) may be able to answer this. Is there any time limit on an unsecured note if there is no attempt made by the lender to retrieve the deficiency after x years?

[SD Realtor]

Agreed with Esmith with the following caviot. I have seen different cases with helocs as they are applied to short sales. In case 1 I have seen the lender inform the seller that they will allow the short sale under the condition that any deficiency does indeed become an unsecured loan. That decision is backed up with paperwork that accompanies the release of lien letter and is so stated. This is exactly what you have posted E.

Yet I have also seen the “nicer” lien release letter where the lender does not demand that the deficiency becomes an unsecured loan. I guess different lenders have different criteria on that sort of decision.

Also, and attorneys (DaCounselor) may be able to answer this. Is there any time limit on an unsecured note if there is no attempt made by the lender to retrieve the deficiency after x years?

[Author]

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