Recourse loans? or not?

[btt04]

I have two loans. They are both with chase, a 30 fixed and a heloc that I used to buy the house. 1 year later I refinanced them into better rates with chase, and now I am hearing that they might be recourse loan and other say no because they were refinanced for less/same as owed, ie no cash out. I am in California. I am now really freaked out they won't work with me and then kill me on a judgement and collection.

[The Professor]

As a result of the refinances, both loans are technically recourse in nature (when applying California Code of Civil Procedure Section 580b). That being said, from a practical standpoint the first loan will likely end up being non-recourse because the lender will elect to proceed to foreclose utilizing the procedure set out in Civil Code Section 2924b, which describes the non-judicial foreclosure process. Once the foreclosure sale is completed by the trustee, that lender will no longer have the ability to seek a deficiency judgment against you.

The second loan is your problem and I need additional information to suggest what potential problems you face. Provide:

1. Your estimate of the fair market value of your home.
2. The unpaid balance on the first loan.
3. The unpaid balance on the second loan.

Daniel

[btt04]

Daniel,
Thanks for your help. I believe the fair market value to be $330,000. The first has an unpaid balance of $410K, the 2nd 106K.

This is one of those pit in the stomach issues. Thanks again for your help.

[The Professor]

Was the original 2nd loan with Chase? I ask that because a key factual point may be that you were not informed (a likelihood) that you were giving up non-recourse protection by refinancing and, if this information had been disclosed, you would not have gone forward with the refinance.

This argument is much more appealing if your former lender was Chase and your new lender was Chase. You could easily argue that the substance of the transaction (a modification) was more important than its form (a refinance).

This isn't to say that if Chase wasn't the original lender that you don't still have a non-disclosure argument.

Additionally where Chase holds both the first and the second loan and forecloses on the first, there is at least one court case that suggests their election of a non-judicial foreclosure remedy on the first loan acts as an election for the second loan too and they cannot go after you personally.

I guess my point in all of this is you need to talk to a lawyer skilled in real estate law and debt collection practices as soon as possible to map out a strategy.

Take care,

Daniel

[btt04]

Thanks. I was thinking that was the case, for piece of mind at least. Since the both loans were originally with Chase, and when I refinanced it was to lower the rates, turn my first into a 30 year fixed. So I never took cash or even added to the loans, I paid all costs out of pocket. Any suggestions on a good lawyer?

[The Professor]

This Board is supported through the monetary contributions of law firms that meet Moe's expectations. I would trust Moe's judgment and consider hiring one of those firms. In saying that recognize that I receive absolutely no compensation from this site or any lawyers supporting it. My compensation comes in the form of an occasional "thank you" and I use the site in an effort to educate my students in a manner that provides "real world" examples of what you and other borrowers are facing.

Take care,

Daniel

[btt04]

Daniel,

Thank you for your help! A lot of us are getting a lifetime of education.

Bill

[The Professor]

The only problem with this "lifetime of education" is the tuition is awfully expensive.

Daniel

[btt04]

Professor,

What and where would the wording be to see if my loans are recourse or non recourse?

[The Professor]

Loan documentation won't indicate if your loan is non-recourse. From the lender's perspective every loan is recourse in nature. What makes it non-recourse is anti-deficiency legislation. I've already answered this question for you in an earlier post when I said, "As a result of the refinances, both loans are technically recourse in nature (when applying California Code of Civil Procedure Section 580b)." I suggest reading the posts I've already made on this thread carefully. They map out a likely result.

Daniel

[btt04]

Thanks. I see what you were saying now. I have contacted a lawyer to look over my case to evaluate my situation.

[NeedHelpwCW]

Hi,

I am a bit confuse with recourse vs. non-recourse. I have a 1st with countrywide and a 2nd with Cit (HELOC).

The 1st was taken out at the time of purchase of the home. The 2nd was taken shortly after the purchase transaction to perform some home improvements.

I have not refinance any of these two loans. This is a bite different from the above scenario. What type of loans do I have? Both?

Thanks!

[The Professor]

What state is the property located in?

Originally Posted by NeedHelpwCW

Hi,

I am a bit confuse with recourse vs. non-recourse. I have a 1st with countrywide and a 2nd with Cit (HELOC).

The 1st was taken out at the time of purchase of the home. The 2nd was taken shortly after the purchase transaction to perform some home improvements.

I have not refinance any of these two loans. This is a bite different from the above scenario. What type of loans do I have? Both?

Thanks!

[NeedHelpwCW]

I am in California.

[The Professor]

Under California Code of Civil Procedure Section 580b, your first loan appears to be "purchase money" resulting in it being non-recourse. Your second loan on the other hand, since its proceeds were not used in the purchase transaction (given it was created at a later time) would be recourse in nature in all likelihood.

This of course isn't what you want to hear. Perhaps some courageous judge will focus on the fact that improvements to homes where the cost of those improvements makes the loan "purchase money" and should be treated as non-recourse, but the state of case law isn't there now.

Take care,

Daniel