is my second a recourse?

[dazed]

---

I am trying to see whether or not my second mortgage is a recourse loan or not. I got into the home in '06 and for some reason we had to refinance the second a few weeks after closing. We too no money out. Is the telling info or is there something I can find on the docs that will let me know?
Thanks

[dazed]

the loan type is a full closing cost heloc. Thats not good right?
Thanks

[CaWalker]

This is something that you should show to an attorney (specializing in Real Estate Law in your state). It'll be worth it.

That being said, I've read on the forum previously that refinanced loans without any money taken out are non-recourse by nature. Prof of someone else, please correct me if I am wrong.

Can you tell us why a refinance was required a few weeks after closing?

Also, Which state is this in?

[trappedincali]

I refinanced without taking out cash and the two attorneys I've spoken with have told me that refinances (even with no cash out) are recourse. Now this was only during a free consultation and they did not look at my loan docs, but seemed very convinced of this fact.

Your situation may be different and I would echo the previous suggestion that you speak with an attorney before worrying yourself sick over this.

Making matters worse is that there is no requirement that lenders or brokers disclose this fact to you when refinancing. I would have had second thoughts if I knew I was going to lose the protection of California Code of Civil Procedure § 580b upon refinancing. I thought I was buying some time for the market (which hadn't tanked yet) to stabilize. Instead I took on the responsibility of risk which belonged to the lender just two years earlier. A big fat $70,000 mistake. And if they get a judgment against me, it will be at post-judgment interest rate of 10% and can include contract interest and fees.

[Enough Already]

Dazed,
The recourse nature of your loan/s is determined by your state laws. What state are you in?

[Enough Already]

Dazed,

Here are the questions Prof Shays would ask to determine the nature of your loan/s:

1. In what state is the home located?
2. For each loan on the property, identify the lender, the loan balance, and whether the loan was created at the time you purchased the home and the entire loan proceeds were used to buy the home.
3. Did you intend to occupy the home as either a primary or secondary residence at the time you bought it?
4. What is your estimate of the home's current fair market value?

[dazed]

1. In what state is the home located? CA

2. For each loan on the property, identify the lender, the loan balance, and whether the loan was created at the time you purchased the home and the entire loan proceeds were used to buy the home.

The first loan is City Bank and the balance is 400,000 it was created at the time of purchase, The second is through Chase and its is a HELOC that we got into 15days after we bought the money was put into the home there is a 50,000 balance. What happened is when we purchased the mortgage broker made a mistake on our original second. He had us all set but then realized at the last minute that they would not accept gift funds so we had to go with a larger second to start. Then he refinanced us into the 50,000 second at which time we put another 5% down to give us a 80/10/10
3. Did you intend to occupy the home as either a primary or secondary residence at the time you bought it?

It was bought as and continues to be a primary residence.
4. What is your estimate of the home's current fair market value

$250,000

[Enough Already]

Dazed,
I'm no expert, but based on my understanding since all the money was put into the home your 2nd would be non-recourse.

Take a look at Professor Shays' postings on CCP Section 580b relating to purchase money = non-recourse. Here's a link to his page: profhttp://www.loansafe.org/forum/members/professor-shays.html

[dazed]

Thats what I hoping but you can see where its not as cut and dry as my first. I will check the link
thanks

[trappedincali]

The clarification I got from one of my consultations went something like this:

If the loan was used to originally buy the property, then it's non-recourse. If it was used to pay off another mortgage or loan(regardless of whether money was taken out), it's no longer 'purchase money' and would be recourse unless special circumstances were present (like special wording in the new loan docs).

There's so much gray area it's ridiculous though, and I've stopped searching for the answer I'd like to hear. I've already sent a thank you email to my broker, letting her know how much she screwed us over by not disclosing this to us.

[sqa4life]

Is there anywhere in the loan document that can tell whether the loan is recourse or non-recourse?

[trappedincali]

sqa4life,

You need to take your loan docs to an attorney or real estate professional to answer that. Don't waste your time searching for it online, it just isn't there.

[sqa4life]

Thanks trappedincali

[digit]

California: "One Action Rule" governs heloc to be recourse or non. I.E.: If secondary/heloc lender secures loan w/Trust Deed (as they typically do in Cali), they may foreclose if default occurs. However, although 2nd initiated NOD/fcls avails them to dispose via POS (power of sale) or filing suit....these are the "one actions allowable" & significantly, their non judicial NOD/foreclose action extinguishes their right to seek any deficiency balance (irrespectve of wether purchase money or not)---period! They do, however retain if they foreclose via lawsuit &/or if the 1st lien holder initiates instead of them(2nd).

[snapple candy]

Well this is a good one. WAMU holds my first and my HELOC. I am already in foreclosure (this is when I stopped making 2nd payments). I get a letter from WAMU for 2nd saying Notice of Intent to Excelerate and how they will initiate foreclosure proceedings if I dont pay. Ha! Stand in line bucco's. THis is house is way underwater and they wont see a dime anyways. Obviously they dont talk to each other with the same departments.
Not sure if I understand what you saying Digit. It appears I have trust deed 2nd if they are threatening to foreclose. (in Oregon). First is already forclosing. If 1st lien initiates, they can indeed have a deficiency balance?
Maybe I should let them keep going on their own (2nd) and see what happens.Can you clarify? I am getting tired cant think straight. Its late

[dazed]

where do I get a definitive answer? I called the Lawyer from the forum and he said I sould be fine. I talked with another who as unsure. Where is the person who can look at the docs on my second and tell me the status?

[Enough Already]

The search for someone you feel you can trust can be frustrating. We talked to 4-5 attorneys before we found one we felt comfortable with.

My suggestion would be to pay for a consultation with an attorney, and have him/her look over your paperwork. Be sure you contact a lawyer who specializes in real estate law and debt collection. Without having a qualified attorney look over your specific case I don't think you'll get a definite answer.

Good luck!

[dazed]

Its hard when they all "specialize" in this when asked

[Enough Already]

I know. It seems every attorney and their brother have suddenly gotten into real estate law. Like I said, we had to talk to 4-5 before we found someone who really knew what their stuff.

[digit]

?State you reside/hold mortgage?

[dazed]

I am in CA

[digit]

OK, Here's Cali rules (abstractly):

(1) 1st mortgages are NoN-recourse (Cali is a non-recourse state). Exception: If 1st sues to forecloses....(past 50 years+ data shows 99% of time they don't) they'll secure a recourse deficiency judgement & pursue you after taking property. Again, Cali is 99% solidly non-judicial foreclose.....which means 1st lenders take your house via POS (Power Of Sale) clause in the "Trust Deed" you signed when purchasing the home---Here, you pre-authorized the lender to "sell" your house if you defaulted. 2nd or heloc's in Cali typically secured in same fashion.

(2) Cali has a "one action rule" in foreclose process. I.E. - They're allowed one of two options w/caveats: (a) Judicially sue to foreclose------& retain recourse rights (applies to 1sts & 2nds) OR (b) Foreclose NoN-judicially via POS/Trust Deed sale & relinquish recourse/deficiency rights.

*Note: 2nd or heloc lender retains recourse rights if 1st initiates foreclosure.....BUT, if 2nd initiates ahead of 1st (Possibly becuase 2nd is not being paid but 1st is current.......lots of us are here, eh?) then they RELINQUISH RECOURSE----& THEY CANNOT SEEK DEFICIENCY/ PERIOD!!!----"One Action Rule" as Applied.

All circumstances differ.....your home valuation / equity or lack thereof may influence 2nd's discretion as to initiating a foreclosure action or not. Basically....if you've got a 1st + 2nd & your home is upside down LTV w/1st or even showing slight positive equity, 2nd will wait out for you to default on 1st & take what they can get after 1st forecloses.....which is little or nothing after 1st + fees/taxes/commissions get paid.

So, let 2nd go if your strapped....but continue to pay your 1st.
Evenually, 2nd may charge-off anyway.

[The Professor]

Digit said, "So, let 2nd go if your strapped....but continue to pay your 1st.
Evenually, 2nd may charge-off anyway."

Charging a debt off doesn't mean that they won't pursue you down the road. Because a note and deed of trust are effectively viewed as a title granting structure where the holder on your second loan has what is characterized as bare naked legal title to your home, the statute of limitations associated with your typical debt (four years on a written instrument) doesn't apply. So effectively the second could do nothing for thirty years while your home comes back in value, and then foreclose and recover their entire indebtedness (including accrued and unpaid interest).

Expect bucket shop collection agencies to recognize this, pick up these seconds, and not worry about collecting them until property values go up.

Daniel

[digit]

Depends on your situation & state laws governing such debts. However IMHO, if a "bucket shop collector" picks up my "charged off debt" & quietly sits on the fence for decades w/naked title-security to future equity, thats just fine & dandy. Bottom line, you've got the monkey off your back for some time & TIME in your home may be the goal rather than securing future equity.
Also, a decades "old naked title" may be negotiated & paid off for far far less in the future. Everything is negotiable.

?Extrapolate 25 years later....."Bucket shop collector" still has title position in my home via my 25 year old 200k defaulted 2nd w/interest to boot. Now I wanna sell & Bucketman scoops up most of the proceeds. Hmmm, thats ok....I considered it to be a "reverse mortgage" anyway! I got 25 years more in my house for less $pain$ & thats what I'd planned on. My 25 year annuity funded by extra $ saved by defaulting on 2nd is paying off quite handsomely!

[dazed]

I had already decided to walk but am all hung up on the status of my second. I have talked with 2 lawyers who said it should not matter that it was a refinance as long as the money went to the mortgage. which is what happened in my case. Was I reading correctly that if first forecloses then the second can take recourse?
And are banks doing deed in lieu's? And whats the best way to confront them and start the process?
Thanks