Da Recourse Blues...

[negativeequity]

My situation in California:
I owe 325K on a house worth about 225K. I did a refi at the peak of the bubble 6 years ago, and took out a little extra $$$ to cover some education expenses (no--I did NOT go shopping for boats, bikes, or other toys). Regardless, I apparently unknowingly screwed myself in terms of Now not qualifying under the non-recourse clause of California Code of Civil Procedure Section 580(b). (If I am WRONG on that--somebody please tell me!)

So here it is: I was thinking about a strategic default until I read that my refi excluded me from Recourse Protection--even in California, so if I did it anyway (short sale, strategic default, or whatever...)
1. Will they automatically "go after" me for this loan differential?
2. If not automatically, do they have a time limit on how long they can wait before pursuing a judgment?
3. Are tax considerations different for me---does that refi screw me in that way also?
4. Is there a possibility that the ORIGINAL principal at the time of the refi would still be eligible under CCCP580b? In other words--they could only pursue recourse for the amount of equity I took out (about $30K)?

[TomEason]

My situation in California:
I owe 325K on a house worth about 225K. I did a refi at the peak of the bubble 6 years ago, and took out a little extra $$$ to cover some education expenses (no--I did NOT go shopping for boats, bikes, or other toys). Regardless, I apparently unknowingly screwed myself in terms of Now not qualifying under the non-recourse clause of California Code of Civil Procedure Section 580(b). (If I am WRONG on that--somebody please tell me!)

So here it is: I was thinking about a strategic default until I read that my refi excluded me from Recourse Protection--even in California, so if I did it anyway (short sale, strategic default, or whatever...)
1. Will they automatically "go after" me for this loan differential?
2. If not automatically, do they have a time limit on how long they can wait before pursuing a judgment?
3. Are tax considerations different for me---does that refi screw me in that way also?
4. Is there a possibility that the ORIGINAL principal at the time of the refi would still be eligible under CCCP580b? In other words--they could only pursue recourse for the amount of equity I took out (about $30K)?

negativeequity
Excuse me for perhaps being a little dense, but I couldn't understand from your post if you did a SS or a foreclosure or if you still own the property. If you still own the house, and you've decided to let it go, I would recommend you stay in the house absolutely as long as possible rent free, all the while saving a bunch of $$. And, even though your loan is now recourse, lenders always use trustee sales in CA for small residential loans. As such, post trustee sale, the lender cannot pursue you for deficiency under the provisions of Cal CCP Section 580(d), so you are protected. When you refinanced you lost protection under 580(b), but you'll now be protected under 580(d). So, don't worry about deficiency. As for whether you should do a SS or just let it go to foreclosure, here's an idea. I don't like SSs, but if you tell your lender you want to do one, you can use that as a ploy to delay foreclosure. A better idea might be to play the HAMPster Wheel game with your lender. That means submitting a loan mod app as a ploy to delay foreclosure. It's all up to you.

As for federal income tax, if you have a tax person, you might consult them on your particular situation. Otherwise, I can say that you'll likely be able to take advantage of Home Mortgage Debt Forgiveness Act and not have a taxable event. Have fun!

[negativeequity]

@Tomeason: Thanks for the reply...to answer a few questions:

I AM currently in the house. I don't understand how 580d protects me exactly...I spent the afternoon researching 580b so now I guess I have to look at (d) too...
Question:
If they have the option of going after me for the differential, do they lose that right after a certain period of time? I understand that RIGHT NOW, lenders are not doing that on single-family residences...but how much time do they get to decide? It would **** bigtime to have my finances getting back on track 5 years from now to have a bill arrive for 100K, with a notice that they will be going after my assets. Does 580 (d) have an impact on the questions I am asking? If this is well-covered in a topic already... just drop a link for me.
Thank you so much--I appreciate the information.

[TomEason]

@Tomeason: Thanks for the reply...to answer a few questions:

I AM currently in the house. I don't understand how 580d protects me exactly...I spent the afternoon researching 580b so now I guess I have to look at (d) too...
Question:
If they have the option of going after me for the differential, do they lose that right after a certain period of time? I understand that RIGHT NOW, lenders are not doing that on single-family residences...but how much time do they get to decide? It would **** bigtime to have my finances getting back on track 5 years from now to have a bill arrive for 100K, with a notice that they will be going after my assets. Does 580 (d) have an impact on the questions I am asking? If this is well-covered in a topic already... just drop a link for me.
Thank you so much--I appreciate the information.

negativeequity
Lenders don't get to decide anything if they do a trustee sale. There is statutory law, e.g. Cal CCP Section 508(d) that mandates your protection. Again, I reiterate, lenders don't do judicial foreclosures in CA on small residential loans. Hence, they cannot pursue a deficiency judgment against a borrower. Since you evidently aren't willing to accept my statement about your protection under 580(d), I recommend you read the applicable portions of the statute. You can Google Cal CCP Section 580(d) and find lots of info. Good luck!

[negativeequity]

negativeequity
Lenders don't get to decide anything if they do a trustee sale. There is statutory law, e.g. Cal CCP Section 508(d) that mandates your protection. Again, I reiterate, lenders don't do judicial foreclosures in CA on small residential loans. Hence, they cannot pursue a deficiency judgment against a borrower. Since you evidently aren't willing to accept my statement about your protection under 580(d), I recommend you read the applicable portions of the statute. You can Google Cal CCP Section 580(d) and find lots of info. Good luck!

tomeason
OK... well now you are answering my questions regarding 580d as well... Thank You for helping me in my ignorance. Just to make sure I am understanding this correctly.... Essentially, the bank must choose a course of action on the property debt--either trustee or judicial, and if they choose trustee, they can't go after the difference. Since they essentially NEVER use the judicial process on little SFR short sales/foreclosures, I can relax.

[TomEason]

tomeason
OK... well now you are answering my questions regarding 580d as well... Thank You for helping me in my ignorance. Just to make sure I am understanding this correctly.... Essentially, the bank must choose a course of action on the property debt--either trustee or judicial, and if they choose trustee, they can't go after the difference. Since they essentially NEVER use the judicial process on little SFR short sales/foreclosures, I can relax.

negativeequity
Correct, you should relax. Lenders do not ever use judicial foreclosure on small residential loans, and by that I don't mean just SFRs, but also condos, townhouses, duplexes, triplexes, 4-plexes etc. As opposed to large apartment buildings or complexes. And FYI, short sales have nothing to do with it because short sales are always subject to an agreement between the lender and the seller.

[negativeequity]

negativeequity
Correct, you should relax. Lenders do not ever use judicial foreclosure on small residential loans, and by that I don't mean just SFRs, but also condos, townhouses, duplexes, triplexes, 4-plexes etc. As opposed to large apartment buildings or complexes. And FYI, short sales have nothing to do with it because short sales are always subject to an agreement between the lender and the seller.

...and if my situation results in an attempted short sale, then I have to make sure that agreement includes something about the sale proceeds fully retiring the debt--- right?

[TomEason]

...and if my situation results in an attempted short sale, then I have to make sure that agreement includes something about the sale proceeds fully retiring the debt--- right?

negativeequity
You got it! Although I don't espouse SSs, (preferring to just let it go to FC) it's obviously up to you. Just be prepared to endure a bunch of BS, and for which you will receive absolutely no $$. Good deal, no?

[negativeequity]

One more question...

Does the fact that I took out ~$30K when I did my refi have any bearing on this at all? Will they treat my situation differently because of that? I used that money to cover education expenses. I have heard lots of stories about people buying all kinds of things (RV's, Boats, Harleys, etc.) -- and the bank STILL just does a trustee sale?

[TomEason]

One more question...

Does the fact that I took out ~$30K when I did my refi have any bearing on this at all? Will they treat my situation differently because of that? I used that money to cover education expenses. I have heard lots of stories about people buying all kinds of things (RV's, Boats, Harleys, etc.) -- and the bank STILL just does a trustee sale?

Based on my previous answers and your reading of 580(d), you'll be able to figure out any followup questions you may have. Your situation is really pretty simple.