Recourse v. Non-Recourse States

[Professor Shays]

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.