Note that Washington state law allows for a choice of remedy - nonjudicial (quick) foreclosure, no deficiency; or judicial (slow) foreclosure, with deficiency available. Rev. Code Wash. 61.12.050 additionally provides "When there is no express agreement in the mortgage nor any separate instrument given for the payment of the sum secured thereby, the remedy of the mortgagee shall be confined to the property mortgaged." So borrower has to have agreed that deficiency is available.
Washington law also provides that for loans secured by deeds of trust (rather than by mortgages), which means virtually every residential loan, "Except . . . for deeds of trust securing commercial loans, a deficiency judgment shall not be obtained on the obligations secured by a deed of trust against any borrower, grantor, or guarantor after a trustee's sale under that deed of trust."
Non-judicial foreclosure of consumer deeds of trust are far and away the most common in Washington.
In the non-recourse states, such as California and Washington state, the lender may pursue judicial foreclosure instead of non-judicial foreclosure. But in reality most do not. So as a practical matter, they are listed as non-recourse states.
Thanks on the Nevada statute which reads:
NRS 40.455 Deficiency judgment: Award to judgment creditor or beneficiary of deed of trust.
1. Upon application of the judgment creditor or the beneficiary of the deed of trust within 6 months after the date of the foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively, and after the required hearing, the court shall award a deficiency judgment to the judgment creditor or the beneficiary of the deed of trust if it appears from the sheriff’s return or the recital of consideration in the trustee’s deed that there is a deficiency of the proceeds of the sale and a balance remaining due to the judgment creditor or the beneficiary of the deed of trust, respectively.
1) In forclosure, specifically in CA, and the loan is not purchase money but a refi and if the borrower has more than 1 property, does the foreclosing bank have any recourse on those other properties, wether the money was loaned w/ that bank or not?
2) Most banks will not even talk to you until you are delinquent anyway so how can you get that repaired on your credit if someone does go the short sale route?
Hi Cane, the foreclosing bank in California has an option to do judicial foreclosure. But rarely do they do this because it is slow and expensive. I have seen it done with investor owned houses if an investor has a ton of net worth somewhere else.
A short sale can be done without missing a payment. It does not hurt your credit as badly as many people seem to think, especially if you do it without being late and without a foreclosure notice being filed.
see the Harvard Professor of Economics, Martin Feldstein's article in Financial TImes Thursday May 8 Comment… academics are not as bright as they would like you to believe… amazing lack of knowledge…
"Because US mortgages are "no recourse" loans (lenders have no recourse to the house's owner beyond the value of the house), individuals with negative equity have an incentive to default."
And this is from one of the most highly touted economic minds in the US!
My son is broke, out of work, without assets, and has credit card debts over his head. He and his wife and two kids live in West Virginia. His first mortgage bank has referred his loan to a Virginia law firm for collection under non-judicial foreclosure proceedings. He also has a second trust deed mortgage with another finance company - part of the original "first time home buyer" package that he bought into at the peak of the insanity of the 2005 real estate speculation bubble. If I am reading your site and others correctly, he has no realistic prospect of doing a short sale. And the holder of his Second Trust Deed Mortgage 3-year ARM note can come after him for a deficiency judgment even if the first mortgage holder can't because of "no-recourse" provisions.
He bought a property for $220K that was almost certainly over-appraised (as were many in his area) even at the time. The primary mortgage was $180K, the second was $40K (he also got an unacknowledged personal loan from a family member to pay $5K in closing costs). Wachovia and FMSC pretty clearly failed to do due diligence when they qualified him for the original loans. I doubt if anybody will ever be able to prove predatory lending practices, though I personally think a few of those bank officers should do long prison terms for fraud.
All of those things being said, do you see any indications from what I've told you, of a route my son might take out of his mess, that doesn't leave a ~$50K deficiency judgment hanging over his head for the rest of his life? From looking at real estate listings in his area, I also doubt that his property will bring even $150K in foreclosure auction sale.
Richard, why wouldn't your son have a good chance of doing a short sale? That is what I would suggest he consider. It is a better deal for him and the lenders, quite possibly.
And, really, a deficiency judgment is an unsecured debt that can be discharged quite often in bankruptcy. They have outlawed debt slavery in the United States. I think your son has more options. My work involves helping people help themselves and frequently avoid bankruptcy, but that is the big stick that the lenders understand. It gives your son bargaining power.
Chip, as your wrote, "Because US mortgages are "no recourse" loans (lenders have no recourse to the house's owner beyond the value of the house), individuals with negative equity have an incentive to default."
Yes, indeed, there is so much misinformation out there. I frequently hear confusion even in very bright minds.
Although there is a grain of truth in some of this. Feldstein's remark should more properly be, "in some states such as California, lenders have no recourse on a first mortgage and so this gives the borrower with negative equity an incentive to default."
Indeed this is true. Not on a second mortgage, generally. And not in all states. But in some states it is true. And that is in my mind what makes the swings between boom and bust worse in California.
It also perhaps gets things sorted out quicker. It may crash more quickly in California, but it may recover more quickly too. Who knows.
Much of time time in mortgage short sales I am seeing lenders ask for a personal note for the deficiency. The first mortgage holder often doesn't do this because they lack recourse anyway. But the second mortgage holders are doing it all the time. Something stinks about the whole deal.
If there was no cash out done on a second mortgage, can there still be a deficiency judgment. I am in California and refied my purchased money HELOC to a fixed rate without pulling any cash out.
Yes, you can be liable because you signed a note. The lender secured the note with a second mortgage, actually not a mortgage but a deed of trust…merely a technicality. The lender won't foreclose if there is no equity left. But they can sue you in civil court as a simple collection action and get a jugment and pursue assets, garnish wages, etc.
I want to be sure I understand this, In Washington State, what if there are two deeds of trust (one initial mortgage, and the other a Heloc…with a different lender). How does the defiency law work? Thanks.
Richard,
I've been reading Ripoff.com's currently posted 411 negative association comments from disguntled Homecomings Financial borrowers. Being one myself, one who fell into the sub-prime lender's frenzy of loans in 2005, I'm currently considering walking away from my townhouse. My mortgage (first and only) is upside down, especially after the attorney's fees are added in and my payment is more than I need to be paying AND has a huge 12.25% rate. I just received the attorney's notice of sale date of 7/15. I can rent a larger home for 1/2 the cost. Homecomings keeps running me through a seemingly never ending cycle of re-payment plan possibilities whereas you send them $1,550.00 two or three months in a row and "we'll see about it" but I get a feeling they have no intention of re-structuring. Are you sure Alabama is a no-recourse state and what do you think about my walking away? I'm not concerned about my credit score as it's already shot. Thanks.
Walt, I think Alabama shouldn't be considered a walkaway state.
A bit of additional research shows they can get a deficiency judgment.
As to your situation…lenders like you to keep paying so they do not have to report the loan as non-performing. I say "lenders" but really it is mortgage servicers.
I would consider a short sale if you can. If you don't want to do a short sale, you might want to walk away and bankruptcy would be an option as deficiency is an unsecured loan.
Thanks for your input. The law firm handling the sale sent me a copy of the foreclosure notice to be published Thursday and it states "This property will be sold without warranty or recourse, expressed or implied as to title, use and/or enjoyment and will be sold subject to the right of redemption of all parties entitled thereto." Does this mention of "without recourse" refer to a deficiency judgement?
Good Morning Richard,
You are such a valuable asset and I really appreciate your help. If you ever need any architectural advice, just let me know. My lender has developed a mean demeanor the last couple of conversations I've had with them, and as I begin to come to grips with walking away, I feel less stress. Although I would prefer my lender would just grant me a 30 yr. fixed 7% +/- conventional mortgage that I could afford in lieu of the ARM (currently 12.25%) I currently have, apparently they would prefer to sell my property at a loss. The foreclosure notice was published today with two more weekly publications to follow prior to the courthouse steps sale on 7/15. I understand bidders are not allowed to view my property until after the sale as it is still owned by me. If the lender comes after me for a deficiency judgement then I guess I'll file for bankruptcy as I'll still need 7 years to rebuild my credit due to the foreclosure anyway. What an economy! Again, thanks for your advice!
25 Comments on List of non-recourse mortgage walkaway states »
March 20, 2008
carol @ 11:10 am:
Got a statutory cite for Montana? I'm having trouble locating the actual language.
Lawyer @ 11:11 am:
Nevada is a recourse state, not non-recourse. Your listing of Nevada as non-recourse is incorrect, and providing people the wrong advice.
Deficiency judgments can be obtained on all foreclosed deeds of trust: NRS 40.455
Mark @ 3:27 pm:
Note that Washington state law allows for a choice of remedy - nonjudicial (quick) foreclosure, no deficiency; or judicial (slow) foreclosure, with deficiency available. Rev. Code Wash. 61.12.050 additionally provides "When there is no express agreement in the mortgage nor any separate instrument given for the payment of the sum secured thereby, the remedy of the mortgagee shall be confined to the property mortgaged." So borrower has to have agreed that deficiency is available.
Washington law also provides that for loans secured by deeds of trust (rather than by mortgages), which means virtually every residential loan, "Except . . . for deeds of trust securing commercial loans, a deficiency judgment shall not be obtained on the obligations secured by a deed of trust against any borrower, grantor, or guarantor after a trustee's sale under that deed of trust."
Non-judicial foreclosure of consumer deeds of trust are far and away the most common in Washington.
Richard Geller @ 11:14 pm:
In the non-recourse states, such as California and Washington state, the lender may pursue judicial foreclosure instead of non-judicial foreclosure. But in reality most do not. So as a practical matter, they are listed as non-recourse states.
Richard Geller @ 11:18 pm:
Thanks on the Nevada statute which reads:
NRS 40.455 Deficiency judgment: Award to judgment creditor or beneficiary of deed of trust.
1. Upon application of the judgment creditor or the beneficiary of the deed of trust within 6 months after the date of the foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively, and after the required hearing, the court shall award a deficiency judgment to the judgment creditor or the beneficiary of the deed of trust if it appears from the sheriff’s return or the recital of consideration in the trustee’s deed that there is a deficiency of the proceeds of the sale and a balance remaining due to the judgment creditor or the beneficiary of the deed of trust, respectively.
March 25, 2008
Richard Geller @ 1:04 pm:
"Nevada is a recourse state, not non-recourse. Your listing of Nevada as non-recourse is incorrect, and providing people the wrong advice.
"Deficiency judgments can be obtained on all foreclosed deeds of trust: NRS 40.455"
Fixed. Thanks!
–Richard
Richard Geller @ 1:09 pm:
I added Montana:
Code Ann. 71-1-222 to 71-1-235, 71-1-301 to 71-1-321
Montana is a no-recourse state as long as non-judicial foreclosure is used.
March 31, 2008
Matt @ 7:16 am:
I have read that Rhode Island can seek a deficiency judgment. Can you show me otherwise?
Richard Geller @ 9:19 am:
Yes, Matt, you are right. Rhode Island allows a non-judicial sale of property and allows for a deficiency judgment so I corrected the list. Thanks!
–Richard
April 10, 2008
Mark St James @ 1:23 pm:
I have read that Utah can seek a deficiency judgement as well - can you verify ?
Thank you very much !
Richard Geller @ 3:30 pm:
Yes you are right. Corrected.
April 30, 2008
Cane @ 10:32 am:
I have 2 questions:
1) In forclosure, specifically in CA, and the loan is not purchase money but a refi and if the borrower has more than 1 property, does the foreclosing bank have any recourse on those other properties, wether the money was loaned w/ that bank or not?
2) Most banks will not even talk to you until you are delinquent anyway so how can you get that repaired on your credit if someone does go the short sale route?
May 1, 2008
Richard Geller @ 12:52 pm:
Hi Cane, the foreclosing bank in California has an option to do judicial foreclosure. But rarely do they do this because it is slow and expensive. I have seen it done with investor owned houses if an investor has a ton of net worth somewhere else.
A short sale can be done without missing a payment. It does not hurt your credit as badly as many people seem to think, especially if you do it without being late and without a foreclosure notice being filed.
regards
–Richard
May 9, 2008
chip @ 2:35 pm:
see the Harvard Professor of Economics, Martin Feldstein's article in Financial TImes Thursday May 8 Comment… academics are not as bright as they would like you to believe… amazing lack of knowledge…
"Because US mortgages are "no recourse" loans (lenders have no recourse to the house's owner beyond the value of the house), individuals with negative equity have an incentive to default."
And this is from one of the most highly touted economic minds in the US!
May 10, 2008
Richard A. Lawhern @ 7:24 am:
My son is broke, out of work, without assets, and has credit card debts over his head. He and his wife and two kids live in West Virginia. His first mortgage bank has referred his loan to a Virginia law firm for collection under non-judicial foreclosure proceedings. He also has a second trust deed mortgage with another finance company - part of the original "first time home buyer" package that he bought into at the peak of the insanity of the 2005 real estate speculation bubble. If I am reading your site and others correctly, he has no realistic prospect of doing a short sale. And the holder of his Second Trust Deed Mortgage 3-year ARM note can come after him for a deficiency judgment even if the first mortgage holder can't because of "no-recourse" provisions.
He bought a property for $220K that was almost certainly over-appraised (as were many in his area) even at the time. The primary mortgage was $180K, the second was $40K (he also got an unacknowledged personal loan from a family member to pay $5K in closing costs). Wachovia and FMSC pretty clearly failed to do due diligence when they qualified him for the original loans. I doubt if anybody will ever be able to prove predatory lending practices, though I personally think a few of those bank officers should do long prison terms for fraud.
All of those things being said, do you see any indications from what I've told you, of a route my son might take out of his mess, that doesn't leave a ~$50K deficiency judgment hanging over his head for the rest of his life? From looking at real estate listings in his area, I also doubt that his property will bring even $150K in foreclosure auction sale.
Thanks for any comment you care to offer,
May 12, 2008
Richard Geller @ 7:40 am:
Richard, why wouldn't your son have a good chance of doing a short sale? That is what I would suggest he consider. It is a better deal for him and the lenders, quite possibly.
And, really, a deficiency judgment is an unsecured debt that can be discharged quite often in bankruptcy. They have outlawed debt slavery in the United States. I think your son has more options. My work involves helping people help themselves and frequently avoid bankruptcy, but that is the big stick that the lenders understand. It gives your son bargaining power.
regards
–Richard
Richard Geller @ 7:44 am:
Chip, as your wrote, "Because US mortgages are "no recourse" loans (lenders have no recourse to the house's owner beyond the value of the house), individuals with negative equity have an incentive to default."
Yes, indeed, there is so much misinformation out there. I frequently hear confusion even in very bright minds.
Although there is a grain of truth in some of this. Feldstein's remark should more properly be, "in some states such as California, lenders have no recourse on a first mortgage and so this gives the borrower with negative equity an incentive to default."
Indeed this is true. Not on a second mortgage, generally. And not in all states. But in some states it is true. And that is in my mind what makes the swings between boom and bust worse in California.
It also perhaps gets things sorted out quicker. It may crash more quickly in California, but it may recover more quickly too. Who knows.
Much of time time in mortgage short sales I am seeing lenders ask for a personal note for the deficiency. The first mortgage holder often doesn't do this because they lack recourse anyway. But the second mortgage holders are doing it all the time. Something stinks about the whole deal.
regards
–Richard
Paul @ 10:10 pm:
If there was no cash out done on a second mortgage, can there still be a deficiency judgment. I am in California and refied my purchased money HELOC to a fixed rate without pulling any cash out.
Thanks
May 13, 2008
Richard Geller @ 6:35 am:
Yes, you can be liable because you signed a note. The lender secured the note with a second mortgage, actually not a mortgage but a deed of trust…merely a technicality. The lender won't foreclose if there is no equity left. But they can sue you in civil court as a simple collection action and get a jugment and pursue assets, garnish wages, etc.
regards
–Richard
May 19, 2008
Teri @ 6:04 pm:
I want to be sure I understand this, In Washington State, what if there are two deeds of trust (one initial mortgage, and the other a Heloc…with a different lender). How does the defiency law work? Thanks.
June 9, 2008
Walt Watson @ 1:59 pm:
Richard,
I've been reading Ripoff.com's currently posted 411 negative association comments from disguntled Homecomings Financial borrowers. Being one myself, one who fell into the sub-prime lender's frenzy of loans in 2005, I'm currently considering walking away from my townhouse. My mortgage (first and only) is upside down, especially after the attorney's fees are added in and my payment is more than I need to be paying AND has a huge 12.25% rate. I just received the attorney's notice of sale date of 7/15. I can rent a larger home for 1/2 the cost. Homecomings keeps running me through a seemingly never ending cycle of re-payment plan possibilities whereas you send them $1,550.00 two or three months in a row and "we'll see about it" but I get a feeling they have no intention of re-structuring. Are you sure Alabama is a no-recourse state and what do you think about my walking away? I'm not concerned about my credit score as it's already shot. Thanks.
Richard Geller @ 2:07 pm:
Walt, I think Alabama shouldn't be considered a walkaway state.
A bit of additional research shows they can get a deficiency judgment.
As to your situation…lenders like you to keep paying so they do not have to report the loan as non-performing. I say "lenders" but really it is mortgage servicers.
I would consider a short sale if you can. If you don't want to do a short sale, you might want to walk away and bankruptcy would be an option as deficiency is an unsecured loan.
–Richard
June 10, 2008
Walt Watson @ 12:26 pm:
Richard,
Thanks for your input. The law firm handling the sale sent me a copy of the foreclosure notice to be published Thursday and it states "This property will be sold without warranty or recourse, expressed or implied as to title, use and/or enjoyment and will be sold subject to the right of redemption of all parties entitled thereto." Does this mention of "without recourse" refer to a deficiency judgement?
Thanks.
June 11, 2008
Richard Geller @ 6:37 am:
Hi Walt, without recourse meaning matters of title. The buyer can't change their mind afterwards, or sue. It's an "as is" kind of thing
–Richard
June 12, 2008
Walt Watson @ 7:22 am:
Good Morning Richard,
You are such a valuable asset and I really appreciate your help. If you ever need any architectural advice, just let me know. My lender has developed a mean demeanor the last couple of conversations I've had with them, and as I begin to come to grips with walking away, I feel less stress. Although I would prefer my lender would just grant me a 30 yr. fixed 7% +/- conventional mortgage that I could afford in lieu of the ARM (currently 12.25%) I currently have, apparently they would prefer to sell my property at a loss. The foreclosure notice was published today with two more weekly publications to follow prior to the courthouse steps sale on 7/15. I understand bidders are not allowed to view my property until after the sale as it is still owned by me. If the lender comes after me for a deficiency judgement then I guess I'll file for bankruptcy as I'll still need 7 years to rebuild my credit due to the foreclosure anyway. What an economy! Again, thanks for your advice!
Sincerely, Walt Watson