Non-recourse refi in CA?

[gorvieto]

Is there such a thing as a non-recourse refi in CA? I ask because I refinanced my home, but my attorney suggested that I might be able to argue that the loan is still non-recourse as there was no cash out on the refi. Essentially, the original purchase loan amount was the same after I refinanced (except for closing costs added to the loan).

My concern is that I am now short-selling this property and the defficiency could be more than 200K! (We got an offer for 170K and the loan amount is 383K). I will of course ask my attorney to negotiate that the bank take the house as final payment, but then there is the issue of tax liability (which wouldn't be an issue if this were a non-recourse loan).

Thank you.

[trappedincali]

I am in a similar position where we did not take money out when refinancing, but the consistent answer I keep getting is that ANY refinanced loan is no longer considered purchase money, making it recourse. Certainly don't take my word on it, and re-post if you hear different, but get ready for disappointment.

On the issue of federal tax implications, I don't think that would be a big issue anyway. Your new loan amount, like mine, should be fairly close to the old one. The MFDRA should exclude you from owing taxes on it:

Mortgage Forgiveness Debt Relief Act

"Debt used to refinance your home qualifies for this exclusion, but only up to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified."


I would think that the only real taxable income from the transaction, may be the closing costs and broker fees, which should be minimal and may also fall under exclusion. Consult a good CPA experienced with these issues for further clarification.

Now the state taxes may be an issue since California has yet to extend the protections to match the federal act. I would closely follow SB 1055 and AB 1918 to see what happens in that regard.

[gorvieto]

Sorry, I forgot to mention that this home is not my primary residence, but a second home. This means that I don't qualify for the Mortgage Forgiveness Debt Relief Act.

I have tried to get some time with a CPA, but they are all extremely busy since we are in the middle of tax season. I will try getting some answers after April 15.

Thank you.

[HopingtoFind]

Sorry... but if this is not your primary residence then the loans will be considered recourse regardless whether or not they are purchase money or refi... that said if you only have one loan the lender pursues non-judicial foreclosure they wouldn't be able to go after deficiency judgement.

[emc0317]

any update on your situations? More Power!

[trappedincali]

Now that my foreclosure is complete, I am looking around for a good Tax specialist to see what my position is. I am looking into claiming insolvency since we really don't own anything and have no substantial savings.

[emc0317]

Originally Posted by trappedincali

Now that my foreclosure is complete, I am looking around for a good Tax specialist to see what my position is. I am looking into claiming insolvency since we really don't own anything and have no substantial savings.

trappedincali,

Thanks for your response! Did you consult any lawyer before you default? My situation is closest to you because I refi from 80/20 to 1 loan and never got cashback so I really cant tell if is a purchase money or not. The technicality of refinance in 580b makes it a legal question that's why I'm really careful.

[emc0317]

Originally Posted by HopingtoFind

Sorry... but if this is not your primary residence then the loans will be considered recourse regardless whether or not they are purchase money or refi... that said if you only have one loan the lender pursues non-judicial foreclosure they wouldn't be able to go after deficiency judgement.

Hopingtofind,

Thanks for this respone. You've responded to me this clause before but with all respect how sure are you about this situation that I refi from 80/20 to 1 loan never cashback and primary residence? Thanks and More Power!

[trappedincali]

Originally Posted by emc0317

trappedincali,

Thanks for your response! Did you consult any lawyer before you default? My situation is closest to you because I refi from 80/20 to 1 loan and never got cashback so I really cant tell if is a purchase money or not. The technicality of refinance in 580b makes it a legal question that's why I'm really careful.

I did mention it to a bankruptcy attorney during a consultation and he believed that the loan was now recourse since it was not taken out to purchase the property (hence the term purchase money loan).

[emc0317]

Originally Posted by trappedincali

I did mention it to a bankruptcy attorney during a consultation and he believed that the loan was now recourse since it was not taken out to purchase the property (hence the term purchase money loan).

Thanks for responding. I got this from legaltips.com,

"The big mistake homeowners make is turning a "non-recourse" second loan into a "recourse" loan by refinancing it. A non-recourse loan is a loan that the bank can only look to their secured interest.

So how is a second mortgage a non-recourse loan? Simple, it was "purchase money" for your home. A purchase money loan is one where the money went from the lender, to escrow, and then to the seller or to pay purchase closing costs. In California purchase money loans made on your home (note: not second home or investment properties) are non-recourse. It's simple as that."

Also, it's California state law. It may not be explicitly written in the loan documents. Check out California Code of Civil procedure section 580b.

So you'll just look for good CPA for filing insolvency if they pursue with your other asset?

[emc0317]

trappedincali'

Check this out! This may apply on our case?, the 2nd type?
There are generally two types of purchase money mortgages: (1) a mortgage given by the buyer of property to the seller to secure the balance of the purchase price ("seller take-back" loans) and secured by the property being sold (i.e., not by some other property); or, (2) A "third party" purchase money mortgage, given by lender to secure a loan which was used to pay all or part of the purchase price on the dwelling occupied totally, or in part, by purchaser. A purchase money mortgage involves the owner's/borrower's risk of losing the property and the foreclosure's impact on the owner's credit.

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[trappedincali]

Originally Posted by emc0317

trappedincali'

Check this out! This may apply on our case?, the 2nd type?
There are generally two types of purchase money mortgages: (1) a mortgage given by the buyer of property to the seller to secure the balance of the purchase price ("seller take-back" loans) and secured by the property being sold (i.e., not by some other property); or, (2) A "third party" purchase money mortgage, given by lender to secure a loan which was used to pay all or part of the purchase price on the dwelling occupied totally, or in part, by purchaser. A purchase money mortgage involves the owner's/borrower's risk of losing the property and the foreclosure's impact on the owner's credit.

fficeffice" />>>

Well, there are two primary concerns with MY situation.

The first being the ability of the second mortgage holder to pursue me for a deficiency judgement. I haven't heard a word from them (previously Countrywide, now BofA) since the sale of the house. They could bury their heads in the sand for many years or worse yet, sell it to a collection agency who will use sleezy tactics to collect. I MIGHT be able to argue the fact that I have protection due to the non-cash out refi IF I could find an attorney to argue that case. It would probably be precident setting and high risk for most lawyers, so chances are probably slim that I could get representation without a hefty retainer.

The second will be the tax implications, which I am hopeful that I can claim insolvency for some protection.

The only problem I see with the exerpt you posted is the fact that the term 'purchase money mortgage' is used to describe the loan. Everything I know or have been told has lead me to believe that refinanced loans are not 'purchase money'.

The good news is that I have seen very little about banks pursuing deficiency judgements on seconds so far. But, I have a feeling this is going to change very soon.

[HopingtoFind]

Originally Posted by emc0317

Hopingtofind,

Thanks for this respone. You've responded to me this clause before but with all respect how sure are you about this situation that I refi from 80/20 to 1 loan never cashback and primary residence? Thanks and More Power!

My response was not to you, unless you were the person who originated this post, and it doesn't look like you are OP.

Person who originally posted was talking about NON PRIMIARY residence. Loans on non primary residence are ALWAYS recourse.

Hope I clarified things for you.

[emc0317]

Originally Posted by HopingtoFind

My response was not to you, unless you were the person who originated this post, and it doesn't look like you are OP.

Person who originally posted was talking about NON PRIMIARY residence. Loans on non primary residence are ALWAYS recourse.

Hope I clarified things for you.

Hopingtofind,

You responded to me about a month ago on a different thread. Sorry, Thanks and More Power!