Recourse mortgage loan means you are responsible for all debt
Q: I am $75,000 upside down and seriously debating either, to just walk away or negotiate a short sale. My friend told me I may have a recourse mortgage, which I never heard of. Can you explain? I live in Missouri.
A: If the debt is recourse, you are personally liable for the debt. So a recourse home mortgage means that if your house is foreclosed or sold short, lender can hold you personally liable for any loss and will try to recover it through a deficiency judgment. A deficiency judgment is the difference between what you owe on your mortgage and the amount your lender will get from selling your house.
With a nonrecourse debt, the loan is only secured by the property, and you are not personally liable for the deficiency. Now, in case of short sale, you may try to negotiate with the lender, to sort of change course, converting your potentially recourse mortgage loan into a nonrecourse debt. By just walking away, you may be exposing yourself to a potential lawsuit. There are few variables you need to consider and by simply stating that you live in Missouri, you will not get any definitive answer here, but read on.
The problem with recourse mortgage is that in some states, you are responsible for any remaining debt, whereas in others, first mortgage is nonrecourse debt, but second and subsequent ones are recourse loans. In some states, a mortgage used to purchase a residence is nonrecourse, but a mortgage taken to refinance a previous mortgage on the same house will be recourse. Home equity lines of credit most likely belong to recourse loan type. So if you refinanced or have a second mortgage or a line of credit, your lender can get deficiency judgments to recover losses incurred from foreclosure or short sale.
You need to consult with a knowledgeable local attorney to determine if you have a recourse mortgage. If you do, you may have to declare bankruptcy in addition to the foreclosure to protect your other assets and wages from the lenders that hold your loans. The attorney also may be aware of some state laws that can shield you from potential deficiency judgment.
Wed Dec 23, 2009 12:12AM by Tony | More in Mortgage | Comments (0)
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