my 2nd in Ca a recourse loan?

[sassafrass]

We are thinking of walking away and need to know if our 2nd
mortgage is a recourse or non-recourse loan.
It originally was part of a 80-20 that was purchase money.
It is large, $240K, came with a checkbook and I used 2 checks for a total of $3,000 of the equity I had paid down.
My question is did using that small amount change the terms of
the total amount, the remaining $237K into a recourse loan,or
is this still a non-recourse loan since it was used to purchase?
If anyone knows this please answer. thanks!

[ProfessorShays]

Dates and amounts would help.

For example. Purchased the home on 1/2/07. Second was a HELOC and $237K was drawn upon at closing (and recording the HELOC) to pay for part of the purchase price. On 6/1/07 and then again on 7/1/07 $1.5K advances (totaling $3K) were taken raising the balance to $240K. Balance reduced to $236K as the result of payments made sense then.....

Daniel

[sassafrass]

Purchased home on 1/3/06. second a heloc for 240k was used (the total amount) to pay for part of purchase. On 5/20/07 used a draw check
for 1k, and on Dec 20th used a draw check for 2k. raising the balance back to the original amount, 240k.
Does this help?
Thank you!

[ProfessorShays]

First let me advise you that you need to contact an attorney skilled in real property law and debt collection practice to review your documents (both purchase and loan). My sense is while there are no cases that I'm aware of that would be "on-point," I simply cannot believe that a Court would find that your loan would lose its purchase money characteristic, at least to the level of $237K. What might be an effective compromise decision is that there is recourse as to the $3K, which in your circumstances I might suggest offering if the lender chases you. Your key is to educate yourself looking at the postings here that discuss California Code of Civil Procedure Section 580b. Do that before talking to a lawyer. That way you will be able to measure effectively whether the lawyer is familiar with this consumer protection law.

Daniel

[faith]

We are thinking of walking away and need to know if our 2nd
mortgage is a recourse or non-recourse loan.
It originally was part of a 80-20 that was purchase money.
It is large, $240K, came with a checkbook and I used 2 checks for a total of $3,000 of the equity I had paid down.
My question is did using that small amount change the terms of
the total amount, the remaining $237K into a recourse loan,or
is this still a non-recourse loan since it was used to purchase?
If anyone knows this please answer. thanks!

__________________________________________________ ____________

Good evening Sassafr****
I found the information that Prof Shays was talking about, I copied and pasted it, fyi only.

California has enacted anti-deficiency legislation which is found in Procedural Code of Civil Code sections 580b and 580d

Deficiency Judgments and California Law

Code of Civil Procedure section 580b - prohibits deficiency judgments based on the character of the loan at the time it is made. A lender whose loan is made for the purchase of residential property containing one-to-four units, one of which the borrower intends to occupy, and whose loan is secured by that same property, may only pursue the security and not the borrower.

Additionally, section 580b prohibits a seller who has carried back a loan as part of the sales price of the property from obtaining a deficiency judgment against a defaulting borrower. This seller carry-back rule applies to any type of property, not just residential one to four. The statute reads as follows:

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof if no deficiency judgment would lie under the deed of trust or mortgage on the real property or estate for years therein.

Notice that section 580b does not refer to a seller but instead to a deed of trust given by the vendor to receive payment of the purchase price. The term vendor has been interpreted to include not just sellers but also previous lienholders who allow their liens to be assumed in order to effectuate a sale. (Costanzo v. Ganguly, 12 Cal. App. 4 1085 (1993).) Thus, even these prior lienholders/"vendors" are prevented from obtaining a deficiency judgment.

CA Procedural Civil Code section 580d – The prohibition on deficiency judgments found in Code of Civil Procedure section 580d, on the other hand, does not depend on the character of the loan, but rather on the process of the foreclosure action. Section 580d prohibits deficiency judgments when the property is sold through the exercise of a power
of sale clause contained in the deed of trust.

Thus, section 580d applies to nonjudicial, or trustee's sales, regardless of the type of property or the character of the loan. As a result of section 580d, deficiency judgments, with limited exceptions, are only permitted following a judicial foreclosure. Even so, there are limitations on the amount of a deficiency following a judicial foreclosure. The amount of the deficiency judgment allowed is the lesser of:

�� The amount by which the debt exceeds the fair value of the property at the time of the foreclosure sale or

�� The amount by which the debt exceeds the sales price of the property at the foreclosure sale.

For example, if a lender was owed $300,000 at the time of the foreclosure sale and a successful bidder at that sale paid $225,000, but the property's fair value was $250,000, then the maximum deficiency judgment allowed would be only $50,000. This is the case because the difference between the debt and the fair value ($300,000 - $250,000 = $50,000) is smaller than the difference between the debt and the amount received ($300,000 $225,000 = $75,000).

In order to obtain a deficiency judgment, a lender must apply to the court for a deficiency judgment within three months of the judicial foreclosure sale (Cal. Code Civ. Proc. § 726(b)).



Faith

[sassafrass]

I have decided to seek the advice of an attorney in the field of real property
law and debt collection practices to review my loans.
If anyone knows of such an attorney they could refer me to could you please let me know? I live in orange co, ca. if that helps.
Thanks in advance!

[Maurice Bedard]

You will have to either check with the California Bar Association
The State Bar of California
or National Association of Consumer Advocates – Consumer Protection Advocates and Attorneys
to find an attorney referal in your area.............
or you can check with the attorney on the home page of this site to see if he might be able to help or refer you...........

[noonie]

So, what was the verdict sassafrass?

[knownick]

So, what was the verdict sassafrass?

I can tell you that in my very similar case (different numbers but essentially the same scenario), the first foreclosed and the second has made no effort at all to collect. They sent me a 1099, changed the current balance to "0" on my credit report, and went away. Been almost two years now.

[noonie]

Yeah, i'm hoping to not get a 1099 that counts against me. The WF HELOC has an amt. of 1xx,xxx that was purchase money simultaneous with the first mortgage, and then a "child" account for $1,xxx line of credit (which I used one time to pay on the first to get caught up, depositing it directly from the HELOC, to my WF checking account and then directly transferring to the WF first/primary loan. They can clearly see that I never used a dime for improvements or debts, but just on the first loan.

Worst case scenario, IMO the 1xx,xxx is non-recourse, with the 1,xxx possibly recourse, unless I pay it off. I should not have to pay taxes on the 1xx,xxx.

[knownick]

Yeah, i'm hoping to not get a 1099 that counts against me. The WF HELOC has an amt. of 1xx,xxx that was purchase money simultaneous with the first mortgage, and then a "child" account for $1,xxx line of credit (which I used one time to pay on the first to get caught up, depositing it directly from the HELOC, to my WF checking account and then directly transferring to the WF first/primary loan. They can clearly see that I never used a dime for improvements or debts, but just on the first loan.

Worst case scenario, IMO the 1xx,xxx is non-recourse, with the 1,xxx possibly recourse, unless I pay it off. I should not have to pay taxes on the 1xx,xxx.

Receiving a 1099-C doesn't mean you owe taxes. If the home was your primary residence and the loan was purchase money, it's clearly non-recourse and no taxes will be owed. It is, however, a good indication that the lending bank has no intention of pursuing the debt.

I had the same WFB HELOC that you do. I also drew it down one time, for about $1,000. They went away after the foreclosure and I have yet to hear a peep from them.

[Screwed11]

Receiving a 1099-C doesn't mean you owe taxes. If the home was your primary residence and the loan was purchase money, it's clearly non-recourse and no taxes will be owed. It is, however, a good indication that the lending bank has no intention of pursuing the debt.

Hi knownick,

I got the impression that if a homeowner has two loans with two different lenders (as I do), then we'd receive a 1099-A from the senior lender, and a 1099-C from the junior lender in case of non-recourse, purchase money loans? Is this right?

Also, since we have three different loans with our junior lender, should we expect three different 1099-Cs, one for each loan with them, or just one for the amount of the entire outstanding / wiped out debt with them?

I am asking because what I'm getting from your post is that a wiped out junior lender issuing a 1099-A (with or without Box No. 5 checked) is a good indicator that the junior lender will at least ATTEMPT to collect on their loan(s) even if the law makes these loans "non-recourse"? Is this right? Could you please clarify?

Thank you.

[sassafrass]

So, what was the verdict sassafrass?

I apologize for not following up sooner. The Attorney we hired assured us the 2nd was non-recourse after reviewing our loan documents. We still tried to short sale, found an all cash buyer but Chase would only agree if we agreed to pay the rest of the balance.
Since our 2nd was non-recourse our attorney said not to agree to those conditions and so they refused the short sale and foreclosed. They charged off the 2nd and our good credit took a dive. We have good income and downpayment $ and fico back up to 683 one year after foreclosure and want to purchase another home but the foreclosure waiting period is preventing us from doing so.
Hope this answers your question, best of luck! Sassafrass

[knownick]

Hi knownick,

I got the impression that if a homeowner has two loans with two different lenders (as I do), then we'd receive a 1099-A from the senior lender, and a 1099-C from the junior lender in case of non-recourse, purchase money loans? Is this right?

Also, since we have three different loans with our junior lender, should we expect three different 1099-Cs, one for each loan with them, or just one for the amount of the entire outstanding / wiped out debt with them?

I am asking because what I'm getting from your post is that a wiped out junior lender issuing a 1099-A (with or without Box No. 5 checked) is a good indicator that the junior lender will at least ATTEMPT to collect on their loan(s) even if the law makes these loans "non-recourse"? Is this right? Could you please clarify?

Thank you.

I don't really have enough insight to say with certainty what "should" be issued in various scenarios. Frankly I don't even think the banks know and they all have their individual policies - without a lot of consistency.

What I *do* know is a 1099-A or 1099-C is a *reporting* by the bank to the IRS. It's not a bill - it doesn't automatically mean you owe taxes. What it means is the bank is reporting this event to the IRS, so you had better account for it somehow on your taxes. Whether or not it results in taxable income is a question for your tax person (or software).

Anecdotally, I can tell you that I received both 1099-A and 1090-C forms for BOTH of my loans (WFB).

[Screwed11]

What I *do* know is a 1099-A or 1099-C is a *reporting* by the bank to the IRS. It's not a bill - it doesn't automatically mean you owe taxes. What it means is the bank is reporting this event to the IRS, so you had better account for it somehow on your taxes. Whether or not it results in taxable income is a question for your tax person (or software).

Anecdotally, I can tell you that I received both 1099-A and 1090-C forms for BOTH of my loans (WFB).

Hi knownick,

The reason I asked was because you had indicated as follows in another post:

Receiving a 1099-C doesn't mean you owe taxes. If the home was your primary residence and the loan was purchase money, it's clearly non-recourse and no taxes will be owed. It is, however, a good indication that the lending bank has no intention of pursuing the debt.

So, I got confused. Basically, I'm not concerned in the least about owing any tax on the loans, since the loans are all purchase money in California. I am actually much more concerned about the second ATTEMPTING to collect, even if they legally cannot, their wiped out loans. Hence, I was wondering - per your post above - if a junior lender issuing a 1099-A is an equally good indication that they have *not* written off / canceled the debt, and, will attempt to collect it, post-foreclosure.

My main worry from the start has been my junior lender. I know the law's on our side, and our case is pretty clear-cut. But potential collections activities worry me and still keep me up many nights! Guess this fear won't go away until after we're well past our SOL.

[socalmom]

I am in San Diego county and facing a similar situation. $87k HELOC purchase money...paid down and redrew $3K current balance is $74K. Thanks!

[mjc13]

Hi,
I'm in nearly the same situation as Sassafrass (my condo is rented out right now as I live in Seattle but it was my home when I purchased it). I am thinking of foreclosing but need to find out for sure about non-recourse of my 2nd loan. Could you let me know who you used for your real estate attorney and about how much it cost in fees? Or anybody else reading this have a good real estate attorney? Thanks so much MC

[TomEason]

Hi,
I'm in nearly the same situation as Sassafrass (my condo is rented out right now as I live in Seattle but it was my home when I purchased it). I am thinking of foreclosing but need to find out for sure about non-recourse of my 2nd loan. Could you let me know who you used for your real estate attorney and about how much it cost in fees? Or anybody else reading this have a good real estate attorney? Thanks so much MC

mjc13

I think I just posted to you on a different thread.

Why can't you simply read the statute? Very easy to do. It's Cal CCP Section 580 (b). You don't need to pay a lawyer.

Good luck.