Recourse v. Non-Recourse States

[The Professor]

The following article provides a summary of non-recourse mortgage states and anti-deficiency statutes. This may prove helpful for participants.

Daniel


List of Non-Recourse Mortgage States and Anti-Deficiency Statutes
In a non-recourse mortgage state, borrowers are not held personally liable for more than the home’s value at the time that the loan is repaid. The lender may recoup some of its loss through foreclosure. However, the lender may not sue the borrower for additional funds. If the foreclosure sale does not generate enough money to satisfy the loan, the lender must accept the loss.

Each non-recourse state has its own anti-deficiency statutes that prohibit lenders from seeking judgments. In a few cases, anti-deficiency statues do allow lenders to collect a limited amount of money from the borrower (such as the difference between the debt and the fair market value of the property).
Note that in some states (such as California) non-recourse laws apply only to “purchase money” loans (i.e. original home loans that are used to purchase property). Almost all HELOCs and home equity loans are considered recourse loans and lenders for these loans may sue borrowers to recoup loss. (Except in some cases where the second mortgage lender forces the foreclosure. See: HELOC Foreclosures). There has been some speculation that mortgage refinances do not constitute “purchase money” loans. However, there have been no cases to determine this issue one way or the other.

Anti-Deficiency / Non-Recourse States
Alaska
Arizona
California
Connecticut
Florida
Idaho
Minnesota
North Carolina
North Dakota
Texas
Utah
Washington

One Action States
In some states, lenders are only permitted a single lawsuit to collect mortgage debt. This plays out differently depending on the state’s laws. In New York, for example, a lender must choose between the actions of foreclosing on the property or suing to collect the debt. The following states have some type of one action statute:

California
Idaho
Montana
Nevada
New York
Utah

[racoon]

Prof. Shays,

I am in NV. Does this mean if the bank does a trustee sale they will not seek a deficiency? How about the second? If a bank does a charge off on the second what are their options to collect the debt. Is wage garnishment a possibility.

Currently I only know that the second has done a charge off and sent the balance to collections. I am debating at this point whether to go to a BK attorney. At this point, what will I lose... I already have a foreclosure and a very nice rental house to live in! Just trying to make the best of the American Nightmare.

[FacingNorth]

Originally Posted by Professor Shays

There has been some speculation that mortgage refinances do not constitute “purchase money” loans. However, there have been no cases to determine this issue one way or the other.

So are lots of people currently walking away from homes in non-recourse states like AZ even if they've already refinanced their original purchase money loans? With the market I'll probably have to walk away, but I'm in the process of applying for a write down. If I get an offer, I thought I'd have to choose between doing a refi and walking away, but after reading this I'm wondering if it would be worth a gamble to do the refi and then walk if I need to down the road.

[englishharbours]

I thought Florida was a recourse State......has this list changed since published? Thanks...

[Stuck_In_FL]

If it IS true that FL is a non-recourse state and has anti-deficiency statues to protect borrowers as the article states, then there are a whole lot of people on this forum spreading misinformation.

[CalOwner]

I'm curious how the one action statute works in California. Is it similar to NY in that a lender can only seek to foreclose on the property Or sue to collect the debt? Or is it that a lender is only permitted one lawsuit to collect mortgage debt?

[levismom]

I dont see the state of SC on either list? So which is it? re-course or non-recourse?

thanks

[faith]

Originally Posted by levismom

I dont see the state of SC on either list? So which is it? re-course or non-recourse?

thanks

Levismom,
I've research for the answer but it's the same listing as Prof Shays has listed, it listed North Carolina as a non recourse and it doesn't include SC, so that means South Carolina is a recourse state since it does'nt show in the non recourse state listed above...

Thanks,

[azazaz03]

Hello,

First of all, thank you for this wonderful website. I have found a wealth of information!
I have read in other areas and on the HUD website that if you have an FHA insured mortgage, the government may issue a deficiency judgment even if you live in a non recourse state (I live in Arizona). We don't qualify for a loan modification because we are not at the magic number of 31%; however, with my husband's decrease in hours and lowered pay we are finding it impossible to make mortgage payments. We have used some of our savings, but still have some left (under $20,000), which I am feeling very reluctant to pour into a house that is about $70,000 below FMV. We are also current on mortgage. My questions are:
1. If I "walk away", can HUD/FHA file a deficiency judgment against us though we live in Arizona.
2. If they can, do they usually pursue a deficiency judgment and will they take my savings if left in the bank (or other property if I was able to purchase something).
3. I have read that the loan servicing agency must attempt to help you keep the home and if you agree to do a short sale (and qualify for it), they will not pursue a deficiency judgment. If you don't they state that they can pursue deficiency judgment. The problem is, I don't think I would qualify for this program because I do have some savings so I have the means to pay. Are they more likely to pursue a deficiency judgment if I do not cooperate and provide financial information.
Thank you, in advance, for the answers.

[otrora]

Hi there....

I've seen this website with a different list of states, and I noticed some discrepancies (for example, FL is not in this article but it is in this thread):

List of non-recourse mortgage walkaway states

These are all the mortgage walkaway trustee sale states, meaning they are non-judicial foreclosure states.
In those states, generally, when they foreclose on you, they cannot pursue you for their financial losses.
Many, such as California, do in theory allow a lender to choose judicial foreclosure but in those cases the lenders only do so if a borrower has significant other assets. This is the "one action" rule that lets the lender either pursue non-judicial foreclosure, at lower cost and less time, or judicial foreclosure that costs more money and takes more time but lets them go after you for their financial losses.
Alaska
Arizona
Arkansas
California
Colorado
District of Columbia (Washington DC)
Georgia
Hawaii
Idaho
Mississippi
Missouri
Montana (as long as non-judicial foreclosure is used)
Nevada - note that the lender CAN get a deficiency judgment (See below)
New Hampshire
Oregon
Tennessee
Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
Virginia
Washington
West Virginia
These are states that also allow non-judicial foreclosure, and/or where non-judicial foreclosure is more common and deficiency judgments can be obtained more easily:
Michigan
Minnesota
North Carolina
Rhode Island
South Dakota
Utah
Wyoming

Am I missing something?

[otrora]

I found this website with information that has some disparity (FL is NOT listed there, for example):

mortgagereliefformula.com/recourse/

These are all the mortgage walkaway trustee sale states, meaning they are non-judicial foreclosure states.
In those states, generally, when they foreclose on you, they cannot pursue you for their financial losses.
Many, such as California, do in theory allow a lender to choose judicial foreclosure but in those cases the lenders only do so if a borrower has significant other assets. This is the "one action" rule that lets the lender either pursue non-judicial foreclosure, at lower cost and less time, or judicial foreclosure that costs more money and takes more time but lets them go after you for their financial losses.
Alaska
Arizona
Arkansas
California
Colorado
District of Columbia (Washington DC)
Georgia
Hawaii
Idaho
Mississippi
Missouri
Montana (as long as non-judicial foreclosure is used)
Nevada - note that the lender CAN get a deficiency judgment (See below)
New Hampshire
Oregon
Tennessee
Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
Virginia
Washington
West Virginia
These are states that also allow non-judicial foreclosure, and/or where non-judicial foreclosure is more common and deficiency judgments can be obtained more easily:
Michigan
Minnesota
North Carolina
Rhode Island
South Dakota
Utah
Wyoming

Am I missing something?

[ForeBOA]

Does non-recourse loan only apply to primary resident? I got a 100% finance from CW on my second home in California that is being foreclosure on.

TIA