Non-Recourse or Recourse

 









NON-RECOURSE REAL ESTATE LOANS
Under California anti-deficiency laws, certain loans used to purchase real estate are non-recourse, Non-recourse means the borrower is not personally liable for the loan. The lender’s only security is the property it self, not the borrower’s personal assets.

Per California anti-deficiency provisions (CCP 580b & 580.7), the following types of purchase money real estate loans are non-recourse:

1. Loans secured by and used to purchase an owner-occupied, 1-4 unit residential property.

2. Any seller carry back real estate loan secured by the property being sold.

RECOURSE REAL ESTATE LOANS Refinance, junior loans, and home equity loans after acquisition, are not purchase money loans and are considered recourse loans. Recourse means a borrower is personally liable for the repayment of the loan.

Non-recourse versus recourse issue is an important issue when a person is upside down/under water in their property. Upside down or under water means that the loan balances secured by the property are more that the property’s market value.

*Non-recourse means in the event of disposition the lender cannot sue the borrower for the shortage. *Recourse means in the event of disposition, the lender may be able to sue the borrower for the shortage.

In addition, from an income tax report aspect, non-recourse means in the event of disposition, and an upside down borrower normally will not have debt forgiveness income to report. Recourse means in the event of disposition an upside down borrower normally will have debt forgiveness income to report to the IRS and state agencies.

TheJNLGroup Real Estate provides this information as a guide. The information provided should not be used as a substitute to talking to a professional tax advisor or real estate attorney about your individual situation.



WHAT IS A DEFICENCY JUDGMENT

There is no deficiency right in California for “Purchase Money Loans”. This is the loan the borrower obtained in order to purchase the property.

Once the homeowner refinances the property, take out an equity line or consumer loan secured by the property, this rule no longer applies.

 The lender may hold the borrower responsible for the unpaid portion of the loan.

o $100,000.00 balance owing of loan     55,000.00 payments received upon foreclosure     45,000.00 can be moved into a deficiency judgment

recorded against the borrower.  Judgment will show on borrower/seller’s credit report  “Foreclosure” will show on borrower’s credit report  Lender may be able to garnish wages.  If the lender chooses to write off the loan and not record a deficiency

Judgment, they may issue a 1099 for the debt relief and the borrower/seller may pay taxes as income.

** Special Note: Federally back loans, such as FHA and VA, do not come under California anti-deficiency protection. FHA and VA may hold the borrower

personally liable for the debt, even though the loan was used to purchase a California owner-occupied 1-4 residential home.

TheJNLGroup Real Estate provides this information as a guide. The information provided should not be used as a substitute to talking to a professional tax advisor or real estate attorney about your individual situation.