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Recourse v. Non-Recourse States

Discussion in 'Foreclosure Laws' started by ProfessorShays, Aug 4, 2008.

  1. ProfessorShays

    ProfessorShays LoanSafe Member

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


    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
    North Carolina
    North Dakota

    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:

    New York
  2. racoon

    racoon LoanSafe Member

    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.
  3. FacingNorth

    FacingNorth LoanSafe Member

    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.
  4. englishharbours

    englishharbours LoanSafe Member

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

    Stuck_In_FL LoanSafe Member

    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.
  6. CalOwner

    CalOwner LoanSafe Member

    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?
  7. levismom

    levismom LoanSafe Member

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

  8. faith

    faith LoanSafe Member

    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...

  9. azazaz03

    azazaz03 LoanSafe Member


    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.
  10. otrora

    otrora LoanSafe Member

    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

    Am I missing something?
  11. otrora

    otrora LoanSafe Member

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


    Am I missing something?
  12. ForeBOA

    ForeBOA LoanSafe Member

    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.

  13. design

    design LoanSafe Member

    I am having a hard time figuring out if lender can claim a deficiency judgement on me. I'm in CA, possibly looking at foreclosure as short sale and loan mod did not work. I've read in some posts that if you re-fi, a deficiency judgement is possible. I did re-fi, but what is it about a re-fi that changes things? I didn't pull money out. I had a 1st and 2nd when I bought the home and 3 years later (last year) re-fi'd both 1st and 2nd. Please help me understand! Thanks!
  14. AZOwner

    AZOwner LoanSafe Member

    If you live in AZ
    If your mortgage (1st and 2nd (if you have a second) was 100% purchase money
    If you lived in the home as your primary residence for 6 months

    You can walk away from the home, after foreclosure, and the bank cannot pursue a default judgement, nor are you subjected to a 1099.

    If you short sale, the latest is the bank will approve, after months of waiting, maybe, and will tell you to come to the table with $$$ thousands of dollars at closing.

    The loan servicers are not obligated to assist you with staying in your home, you have to play their game, by their rules, and even then over 50% of folks are being told, sorry, you are denied.

    Thousands of people are paying months of trial payments that they could be saving to move on with their lives, and eventually being told to go-fish.

    You have to make your own individual decision, but AZ is one of the best places to be to just walk away. Pay cash for the next several years and recover.
  15. KFish

    KFish LoanSafe Member

    It does not even have to be owner occupied for now. See updates on AZ foreclosure laws...

    Good luck to you!
  16. design

    design LoanSafe Member

  17. KFish

    KFish LoanSafe Member

    The AZ ones have changed (they briefly changed them, but it was overturned by the governor) They do not have to be owner occupied to qualify for non-deficiency.

    I would think if you did not take out any money, it would qualify, but am not sure. I only spoke to a real estate attorney in AZ, not CA. But I am sure someone here will answer you about that :)
  18. AZOwner

    AZOwner LoanSafe Member

  19. quwan1965

    quwan1965 LoanSafe Member

    Recourse v. Non-Recourse States<!-- google_ad_section_end --> The above stated that Alaska ia a non-recourse state but after reviewing Alaska law it look like if you mortgage company choose to do a judicial foreclosure they can . what is this based on and come can I find out which one they can do.

    thanks Quwan<!-- google_ad_section_end -->
  20. Enough Already

    Enough Already LoanSafe Member

    I'm not sure how accurate this list is. Florida is a recourse state, but it's listed above as non-recourse. It looks like this list needs to updated.


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