Financing in 95051>Question Details

Lean&mean, Home Buyer in Tracy, CA

Refinance and recourse vs. non-recourse loan

Asked by Lean&mean, Tracy, CA Tue Jul 20, 2010

I am planning to refinance my primary residence. I have one mortgage on the property and LTV < 80%. I only want to refinance the balance on my loan.

I am talking to numerous lenders and most of them do not have answers to my question.

My question is related to recourse vs. non-recourse loans. My understanding is that by law in CA, any mortgage loan is a non-recourse loan. Howerver, it can turn into a recourse loan during HELOC/refinances.

I want to make sure that my loan remains non-recourse after the refinance. Can someone here help me with this question.

How do I make sure that after refinance, my loan remains non-recourse. Is there any part in the GFE that specifies this.


What should I look out for during signing of the refinance documents to ensure that the lender has not switched the loan to recourse.

0 votes Share Flag Financing in 95051

Help the community by answering this question:

Answers

9
Hannah said:
"I am a little surprised that no one is able to assist you with this answer."

And what did you consider the answer given a day before yours to be? Why would you post the same answer and state that you are surprised no one has answered?
1 vote Thank Flag Link Wed Jul 21, 2010
Currently under CA law, when you refinance your mortgage (no matter what the new rate/terms are) your loan will become legally considered as a "recourse" loan. However, CA is currently considering the passage of a bill that could limit refinanced "non-recourse" loans (where just the rate and term were altered) from becoming "recourse."

Here is the link to a video explaining the proposed legislation - http://www.facebook.com/video/video.php?v=1299373613627

SB 1178 (Corbett) will extend anti-deficiency protections to homeowners who have refinanced "purchase money" loans. I would sugest you call, email, contact your local state representatives and urge them to pass this bill.
1 vote Thank Flag Link Wed Jul 21, 2010
Hi Lean & Mean,

I am a little surprised that no one is able to assist you with this answer.

If your current loan is a purchase loan and owner occupied it is a non-recourse loan. It will say on your promissory note. Just pull out your loan docs and look on the Deed of Trust and Note.

If your loan is a purchase money loan and non owner occupied then it is a recourse loan. It will say on your note.

In California, all refinanced loans become recourse loans. All HELOCS & HELOANS also become recourse loans. All Commercial loans are also recourse loans.

In order to protect your current 'non-recourse' loan if this is what you indeed have, then you cannot change the terms of the loan or refinance.

Good luck!

Hannah Fliegel, FICO Pro
415-999-9348
1 vote Thank Flag Link Wed Jul 21, 2010
If your mortgage is not "purchase money" in California, it becomes recourse. Refinancing, even when changing rate and term, makes your mortgage recourse.
1 vote Thank Flag Link Tue Jul 20, 2010
Hi Lean and Mean:

http://www.trulia.com/blog/perry_mistry/2010/09/foreclosure_…

also then read

http://www.trulia.com/blog/perry_mistry/2010/10/anti_deficie…

Once you refi, it is a recourse loan, and the Senate Bill 1178 was vetoed, so if you default the Banks and IRS can come after you, which generally requires one to file for Bankruptcy.

Read Sb1178 in depth and it will be crystal clear, but as always, you should check with your CPA or
Tax attorney.

Good luck
Perry
Web Reference: http://www.ruthandperry.com
0 votes Thank Flag Link Sat Oct 16, 2010
I am planning to refinance my primary residence. I have one mortgage on the property and LTV < 80%. I only want to refinance the balance on my loan.
RL: Good. That means you are ABOVE water. Not much need for you to worry about foreclosure. Just do the refi and be happy with the lower interest rate. The fact that you qualify to refi means you are luckier than many homebuyers who cannot refi because their house LTV is too high or they no longer pass debt/income ratios.

I am talking to numerous lenders and most of them do not have answers to my question.
RL: That's because they know you won't like the answer. After you refi, your loan will become recourse.

I want to make sure that my loan remains non-recourse after the refinance. Can someone here help me with this question.
RL: After refi, your loan will become recourse.

RL:BTW, I too am not a lawyer nor do I play one on TV :-)
0 votes Thank Flag Link Wed Oct 13, 2010
"Thanks for the replies. I wanted to know if all refi's loans become recourse by law or is it the lenders prerogative. The answer I received is that by law anytime you do a refi, the loan becomes recourse. I am having a hard time understanding why the law cares about this but it is what it is. "

I think you are having a problem because you are asking the reverse of what is actually the law. The law states what is non-recourse and that is a purchase money, first mortgage on a primary residence. Therefore, since there is no law protecting you if you refinance this mortgage, and it's no longer purchase money, it is assumed that it is recourse as no law states the otherwise or prevents a lender from seeking the deficiency should you default.

Hope that helps, and no, I'm not a lawyer nor do I play on on TV; please do consult one should you find in necessary.
0 votes Thank Flag Link Wed Aug 4, 2010
Lenders cannot “switch” a loan from non-recourse to recourse. If it happens, it happens by process of law. In other words, the law in regard to what is a recourse loan and what is not will govern your current loan and any future loan that you take out against your property. Do not rely on the opinion of a Realtor as to whether your loan will be recourse or not. Seek legal advice from someone who is qualified to provide it. If you are serious about finding out the correct answer to your question, seek the advice of an attorney who is experienced in real estate law.
0 votes Thank Flag Link Wed Aug 4, 2010
Hi all,
Thanks for the replies. I wanted to know if all refi's loans become recourse by law or is it the lenders prerogative. The answer I received is that by law anytime you do a refi, the loan becomes recourse. I am having a hard time understanding why the law cares about this but it is what it is.

I will have to figure out what the implications of a recourse loan is for a property which has greater value than what is owed to the bank.

And I will keep an eye open for SB1178.

Thanks
0 votes Thank Flag Link Thu Jul 29, 2010
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2015 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer