Banks are increasingly pursuing deficiency judgments against former homeowners who lost their homes in foreclosures.
In California, in most cases, when you purchase a home, the loan or loans are purchase money “non-recourse” loans, meaning that the bank will not be able to pursue the debtor if the house later goes into foreclosure. However, what most home owners do not understand that this generally only applies to a primary residence and only to purchase money loans.
So in the case where the home owner refinances, take a little money out to do home improvements, or tacks the “point” for the cost of the loan on to the new refinance, they are changing their “non-recourse loan” into a “recourse loan” which allows banks to pursue a deficiency judgments against former homeowner.
Most clients that I talk with in this situation tell me” “no one told me that my refinance changes my loan into a “recourse loan!”
Lenders may sue borrowers for mortgage debt that isn’t covered in a foreclosure sale in 41 states and the District of Columbia, creating a “foreclosure hangover” for former homeowners, the Wall Street Journal reports. Some banks told the newspaper they are most likely to pursue homeowners when they perceive them to be “strategic defaulters” who stopped paying their mortgages because of a decline in property values.
The newspaper profiled Joseph Reilly, an unemployed mortgage broker who lost his vacation home to foreclosure. The bank obtained a $192,000 deficiency judgment, and Reilly says “there’s not a snowball’s chance in hell” that he can pay it. He is considering filing for bankruptcy.
In this situation most people, like Mr. Reilly, will be able to gain protection through filing for bankruptcy.
To view the Wall Street Journal article go to:
http://online.wsj.com/article/SB10001424053111904060604576572532029526792.htm
