California Real Estate Law - Is a home equity loan non recourse

Its amazing to see that this thread started in September 2006 with this very issue.

Some banks are still claiming Helocs become "like credit cards" after a foreclosure.

I find the a disingenous argument.

I would get aggressive with them and take the position their continued negative remarks are defamation.

I would threaten to sue and I think I would be preparred to follow thru on my threat. 

If this home was your residence (perhaps primary residence) at time of purchase I seriously doubt the lender wants to go to court based on the facts you gave me.

I would start with a RESPA Request and or a letter disputing the debt. I would make them jump through all sorts of hoops to prove they still have a right to collect on debt when 580b indicates they were paid in full. 

Eventually they will cave in.  So far they always have.

1. I really can't predict.  It is true I am contacted by people being pursued by collection lawyers after short sales and foreclosures, but I sense that I see a relatively largers sample of that group because of my internet presence.  I suspect only a small percentage of people have faced aggressive collection actions so far.    

2. Prior to a foreclosure it is unlikely the second could get a judge to agree to let them garnish you wages.   They can not get a judgment until they sue you.  If they sue you before the first forecloses, you would probably be able to force them to foreclose by virtue of the security first rule.  (provided the property is in Califonrnia.) 

However, if the first forecloses and your second thereby becomes a sold out junior of a recourse loan... it might eventually be able to garnish your wages. However, you should speak with an experience local attorney.  If they ever tried to sue you, you might hve some very good defenses.   

First of all this applies to California real estate.

1. There may be exceptions and outs, but, in general when you have refinanced a loan you should operate under the assumption the new loan(s) is are recourse loans.  

2. If you refi with the same institution and do not take cash out... you might argue the loan was really like a loan mod not a new loan.  Some case law suggets that if you only change the rate or term, you may not lose CCP 580b protection.  Again, before relying on this info speak with an experienced real estate attorney.  

3.  You might wish to find out who the owns the loans.   Perhaps your daughter could argue that unity of ownership merges the rights of the second into the rights of the first.  But note, this argument is not an easier winner for anyone because most loans today have been sliced and diced and sold off. 

In short... people with recourse seconds really need to review all their options before taking a foreclosure. 

Note... I did not plan to go over the pros and cons of short sale with recourse loans here....

But, note if you daughter has assets, she may not wish to provide a road map to those assets to her lender.  Especially if she is close to a foreclosure date.  

Also, in light of the amended CCP 580e  (which is the law created from SB 931 and SB 458) seconds especially those with behind the scenes Mortgage Insurance are turning down short sales and forcing the foreclosure.  

In situations like your daugthers we do a cost benefit analysis.  

There is a risk BofA will come after her for the entire amount of a recourse junior loan. 

There is a chance they will never pursue your daughter. 

If they do pursue it is likely they would settle for a percentage of the amount owed.  

The key is to determine how proactive to be and when to enter into  negotiations.  

Thanks for the comment about deeds in lieu.  

Back in 2007 (and prior) we negotiated a quite a few deeds in lieu.  Now they are far more tricky.  

1. The lenders now believe you should provide a road map to your assets before they accept a deed in lieu.  (you have to negotiate really well to avoid this.) 

2. When two loans are involved the second is really just a settlement or short payoff negotiation since the second does not get the deed back.  So the senior typically tells you to negotiate with the second.