I shudder when I read blanket statements that California mortgages are Non-Recourse. Why do I shudder? Because people BELIEVE IT and are making decisions about whether to let their home go to foreclosure based on an incomplete understanding of the facts.
So what ARE the facts?
Under California law, a mortgage debt is considered "non-recourse" when the mortgage was made under the following two circumstances:
- The mortgage was made to purchase a 1 - 4 unit property and the borrower occupies at least one of the units.
- The Seller financing for all or a portion of the purchase price of the property.
A mortgage with Recourse is one in which neither of the above two exemptions applies. Examples of recourse debt are:
- Refinanced mortgages
- Home equity lines of credit and/or 2nd mortgages obtained after purchase
- Mortgages for non-primary properties (including vacation homes and investment properties)
Given the previous run-up of property values combined with low interest rates, the number of people who DIDN'T refinance their homes and, in many cases, add a Home Equity Line of Credit is extremely low. Only those owner-ocuppant homeowners who retained their purchase money mortgage(s) on their primary residence have non-recourse debt, everyone else has recourse debt.
The second important part of this recourse equation:
- the foreclosing lender waives their right to recourse unless they choose to pursue a Judicial Foreclosure instead of a Trustee Sale. Given that the homeowner has a Right to Redemption in a judicial foreclosure, lenders rarely pursue this option.
- the non-foreclosing lender - typically the 2nd or Home Equity lienholder - still has the right to pursue the deficiency for up to four years.
Homeowners should always consult with an attorney regarding their personal situation.
Wendy Cutrufelli, Your Real Estate Advocate
925.917.1135
The positions on this site are my own and don't necessarily represent Alain Pinel Realtors' positions, strategies or opinions.
