Hello, Can someone adivse on what page of the Deed of Trust (2nd Heloc for purchase money) that I can find

Asked by Kasy, Mountain House, CA Mon Jan 12, 2009

if the heloc loan from Countrywide is a recourse or non-recourse loan? My house has been foreclosed since July of 08 already, but the 2nd (got the heloc piggybacked with the 1st loan when we purchase the house) sold the heloc to an insurance company. Now the insurance company got a collection agency to call me every other day for payment. I thought I was protected under Civil Code 580b. Am I wrong? The collection agency said they my $83K can be settle for 10%. If I don't settle, it will be on my credit report for life. Is the collection agency right? I've been hearing that my loan is a non-recourse loan. I want to know where I can find that statement on my deed of trust.

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Diane Wheatley’s answer
Diane Wheatl…, Agent, Upland, CA
Mon Jan 12, 2009
I have a few questions for you in order to best answer your question. I understand that you obtained this 2nd mortgage at the same time you obtained the first loan, correct? Did you use any portion of this second trust deed as money used to purchase your home at the time you received title?

A deficiency judgment is not allowed in the state of California on purchase money loans or money that was loaned to you specifically to be applied to the purchase of your home. Hence the term "non recourse" loan. Any loan made to a borrower specifically for the purpose of purchasing their owner occupied residence at the time title was acquired is considered a "non recourse" loan even if it is in second position. Therefore, no deficiency judgment is allowed.

A second trust deed holder will always bears the risk of being extinguished in the event the first trust deed holder or any senior loan holder forecloses on a property that junior liens are recorded against. That is typically why the second trust deed or mortgage interest rate is higher than the first mortgage loan. More risk to the lender means more cost to you.

Deficiency judgments are rarely pursued by the offended lender due to the inability to collect the amount from the borrower after the property has been sold. Bankruptcy will most definitely wipe this debt from your slate whether valid or not. I see that your credit is important to you but you may consider that option by discussing it with a BK attorney.

Because you obtained the loan at the same time you took title to the home is viewed as a strong point in your favor. If the second mortgage was used to purchase your home (example: in an 80/20 piggyback loan where the second mortgage was actually used for your down payment) then it is termed a non-recourse or purchase money loan therefore, no deficiency judgment is allowable (State of California).

Before I go on and become too confusing I will end my answer to you with that information procured by several real estate attorneys, current California real estate law and a whole lot of experience. However, I must finish by making it clear to you that I am not an attorney, make no claims to be an authority on this matter that should supersede the professional advice you should receive from a licensed legal professional who specializes in this field of real estate law. This information provided to you however accurate, shall not be relied upon as fact. Please consult an attorney for further advice.

So sorry you are forced to deal with the ongoing ordeal. The rationale for this should by now be clear: If there is a general collapse of the economy, a simple homeowner who borrowed only to purchase his home should not be forever undone by a deficiency judgment for the balance of his loan; his loss should be limited only to the loss of his home, unless he has taken additional loans against it after acquiring title.

Best to you,

Diane Wheatley, Broker
1 vote
Steven Ornel…, Agent, Fremont, CA
Mon Jan 12, 2009
Hi Kasy, sorry to hear of your situation. It does sound like your 2nd is non-recourse. You need to be looking at your Promissory Note, not the Deed of Trust. It may or may not specifically state whether your loan is non-recourse.

Please review questions 4-6 of the document found here:

I wouldn't pay the "CA" a dime, and I would send them a certified letter informing them of the debt's non-recourse status and that if they continue to call you legal counsel will be contracted due to their harassment.

While its true that your credit report will take a hit, your score will be negatively affected for 2 years and the non-payment will show for 7 to 10 years. Lenders will also not lend to anyone who has had a foreclosure/short sale within 3 years.

Best Regards, Steve
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