Got a statutory cite for Montana? I'm having trouble locating the actual language.

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

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.

"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

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.

I have read that Rhode Island can seek a deficiency judgment. Can you show me otherwise?

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

I have read that Utah can seek a deficiency judgement as well - can you verify ?
Thank you very much !

Yes you are right. Corrected.

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?

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

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.

Thanks for any comment you care to offer,

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

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

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

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

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.

–Richard

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.

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

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

With regards to the State of Nevada being a recourse state or non-recourse State, a husband is deeding his half(50%) of the property to the wife, as a settlement in a divorce. The settlement has been drawn up and the verbage in the settlement states that the wife, who has been deeded the property at 100% is required to re-finance within 60 days. This would protect both parties from any issues in the future. The wife is having a complete breakdown. If the wife defaults, is late, etc. and the husband is still on the loan, however is able to show that the divorce states that he has no interest in the home what so ever, and that the county recorders office also shows that the wife now owns the property at 100%, is the husband still liable? What are the consequences with recourse versus non-recourse. Thank you

My mother has an investment property (condo) that is 100k upside down. It has no renter and she is paying $3500 out of her pocket every month which she can no longer do. She wants to walk away but fear that the lender will come after her primary residence (in Virginia) that is paid off for the difference. What options are available to her and which do you feel is best? Does your mortgage relief formula cover this scenario and offer a solution? If so, I am definitely interested in purchasing your mortgage relief formula. Thanks in advance.

I live in Alaska and can no longer afford my mortgage. I have a second mortgage and a $20,000 line of credit. I also have a $5,000 loan (unsecured), and a credit card with the same bank my mortgage is held. I have tried twice to refinance but the bank wouldn't due to my falling credit rating. The mortgage is an ARM and the payment for the next 5 months has been lowered by $90 but that could change in December when the 6 months are up. If I have to walk away from the home, but continue to pay the bills on the $20,000 line of credit, the $5,000 loan and credit card - will the bank allow this and forclose on the home without recourse? Or am I better off just turning the keys over to them stating I'll pay these 3 bills but cant afford the house? Thanks so much, really stressed here.

Hi there, I live in California and my question to you is: What would happen if the lender modify (not refi) a purchase money second mortgage due to hardship? Once it's modified, is it still consider a purchase money loan (non-recourse loan) ? Thank You

The whole thing about "purchase money" in California is the result of a faulty reading of the law. In California, any foreclosure done non-judicially, that is, through a trustee sale, can NOT result in a judgment against the borrower. Whether it is purchase money or not.

Of course, these days, many lenders are not foreclosing on second mortgages. If the first forecloses, the second has their position wiped out. And they can pursue a borrower for breach of contract in civil court.

warmly

–Richard

I have a purchase money heloc(2nd) and took 3,000 equity out. Am facing foreclosure and wondering if that action changed it from a non-recourse to recourse loan and I can be sued for the amount of the loan by the lender.In California. Thanks, Gloria

In California, there really is no difference between purchase money and non purchase money loans, AS LONG AS THEY FORECLOSE USING A TRUSTEE SALE, that is, non judicial foreclosure. That is normal in California anyway.

However, most folks find they have personal liability for second mortgages because the second has no equity. So they can exercise their "one remedy" and pursue the borrower in civil court. You signed a note personally, and the collateral is worthless, so they can sue you.

They will however deal in many ways. The short sale will reduce the balance you owe them a little, and they may require you to sign a note for some of their losses.

warmly

–Richard

I AM CONSIDERING PURCHASING YOUR PROGRAM, HOWEVER, I HAVE MY REAL ESTATE LIC BUT I AM ALSO IN SOME FINANCIAL DISTRESS WITH MANY RENTAL PROPERTIES AND CREDIT CARDS.. WHICH PROGRAM SHOULD I BUY?? DOES THE PRO EDITION ALSO CONTAIN ALL THE OTHER INFORMATION IN THE LESS EXPENSIVE VERSION? I AM WANTING TO GET HELP FOR ME BUT ALSO INFORMATION TO HELP MY BUSINESS. THANKS

If you are in the real estate business get the Pro edition.

warmly

–Richard

Partner and I purchased investment condo in Florida in June 2007. Developer abandonded project after 25+- closings of 100 units. Development Lender still has not foreclosed project and have reciever on site. Title Company [deleted] issued titles without getting lien waiver. Multiple liens then filed by un-paid contractors. [Title company] says they will insure subsequent buyers, but there is no market at this time for units. Certificate of Occupancy was recinded after the 25 closings [county issued "tempoary CO's so developer could require unit closings, which was part of contract and common practice]. Probably upside down at least $150-175k. Currently making payments on time with lender. This is not a primary residence for either of us. We believe the developer knew he was going out, and closing agent was subsidiary of developer [deleted]. Something smells…..Suggestions???

It sure does sound like it smells. But a short sale may be your best option. At least the title company will issue a policy, that's very good. You could see a lawyer of course, one specializing in suing developers. I don't know how deep the developer's pockets are of course. My suggestion would be to see a lawyer and consider a short sale. There is usually a market at some price, and you can use my 9 Day House Sale to find that price, quite often, and sell. Then you have a purchase agreement that is subject to the lender approving it. So you go to the lender and explain the situation and say "here is an offer. It is a very good
offer considering the alternatives" and quite often they accept the offer.

This is much harder to do as long as you are current on payments, unfortunately.

warmly

–Richard

re: Condo in Florida email sent 9/9.

Lender is Wells Fargo and everything I read indicates that they are not cooperating in short sales. Any info on this?

Hello, I purchased a home in 2005 (First loan + Mortgage Insurance), in 2006, I refinanced the First and took out a second, to get rid of mortgage insurance and make the total new loan an 80/20. Since the second loan (50K) taken out was not refinanced, is it a "purchase money loan"? Will they pursue a deficiency judgment here in California? What is the cost of a deficiency judgment to the second, is it worth it to them? If I continue to pay the $360 payment even after the first goes into foreclosure, will this prevent any judgment from the second, or will they seek the entire balance at once when the home forecloses? I have a second home a rental down the street, with little equity, can the second go after that home, my car, my savings, retirement or paycheck? Lots of questions and lots of confusion. If a short sale offer comes in at 417K the balance of the first, what happens to the second due to the conditions mentioned? Do I have to have the second agree to a short sale? Why cant I just advertise the home plus the reality fees, pay of the first without a deficiency and keep making payments on the second at 360/mo in-order to protect my credit?

In California, if they foreclose on you non-judicially it DOES NOT MATTER if a loan is a purchase-money loan or not. They CAN NOT get a deficiency judgment on ANY NON JUDICIAL FORECLOSURE. Period.

Do a short sale, work it out with the second, and walk away from this millstone. The second can go after you in many cases, even in California, because they won't foreclose. The first will. So you have to negotiate with the second. That isn't that hard to do and you can get your life back and start moving forward again.

warmly

–Richard

Aloha! Richard,

Your website is very helpful. If not too much of an imposition can you shed light on my situation? I live I Hawaii and have a first mortgage balance of $ 589,000.0 and a second HELOC for $149,000.00 taken out when the loan was originally obtained back in 2006. I been in touch with Wells Fargo who is the Mortgagee for both first and HELOC. Here are the options they have put on the table thus far. Due t Hawaii being a non-recourse state they indicated that they are declining my short sale request, and leaving me no option but to foreclosure. Can you shed some light on my concerns, as my anxiety may put me in the nut house before all is resolved?

1. If I find a Buyer at $590,000.00 and loan is for $589.000.00 then I assume the first should pretty much betaken care of.

2.In terms of the HELOC, from everything I'm reading the bank can come after me to repay the $1490,000.00? Correct? Is there a loop hold around this? Why is the bank being so ridged about negotiating the $149,000.00.They offered me a term of 10 years no interest for the hold balance of $149,000.00, $1,241.00 per month. Which is unreasonable for someone who is applying for a short sale, as the reason why we are applying for a short sale is due to financial hardship.

3. I assume I'm insolvent on the first mortgage, but not the HELOC potion of $149,000.00. Correct? Will I have to pay taxes on the whole $149,000.00?

4. Do you think it would be possible for me to negotiate some terms to the $149,000.00?

5. If I decide to hand the property over to the bank what sort of penalties will this have on my credit? Is a short sale more beneficial to your credit that a foreclosure?

Mahalo, (Thanks)
BJ

Hey Richard, I live in Columbus, Georgia and my rental property is being foreclosed on. The mortgage company is Homecoming Financials. We have worked out a repayment plan, but the problem is we still can't afford the repayment plan. So my question is would homecoming accept a deed in lieu of foreclosure. I don't have a 2nd or 3rd just the first mortgage. The house is a sucky area and needs repairs. Worst case here in Columbus, Georgia if the house goes into foreclosure what is the likelyhood they will come after me? if they did how would they come after me. Would they take my personal house. I have real estate but all of them are controlled and not owned by sandwich leases. No real equity in any of them. If the house did sell down the road through reo or investor would they just tax me on the difference or would i have to pay it back and be taxed on the amount. I keep hearing people say in georgia they usually just foreclose and leave you alone, but i dont know how true this is. Any help or insight you could provide would be great. My main concern is what exactly can they do to me if the house is foreclosure and what is the likely hood they would come after me. Do you believe they would accept the deed in lieu? Any insights or help would be amazing. I loved the free video btw. Josh H

I don't know if they would come after you. And lenders hate DIL. They will do it if they have to but I'm not sure they would do it much in Georgia. Why not just do a short sale? There is some price that the house can be sold at. Then you can go back to the lender and get them to approve it and you are far better off. And so are they. They don't want the house back, do they?

Even if the house is in poor condition and the area isn't good, there is usually, almost always, some price that the house will sell for. This gets it off your hands and off the lender's hands. It is probably the best course.

warmly

–Richard

Hey Richard, Can a short sale be done to a family member. For example can I short sell my house to my son or brother who doesn't reside with me. And my second question was that is VA. a non recourse state. others sites state that it is a recourse state.. Regards, Raymond

Hi Raymond. A short sale with a family member is not acceptable to the lender. They only like short sales because you can get more for the house than they can if they were to foreclose, get it back, fix it up and market it. But if you are selling to a family member, why would you want to get as high a price as possible? You wouldn't. You would want to get the lowest price possible and that is exactly contrary to the lender's financial interests.

Virginia is a recourse state. You are better off doing a short sale and negotiating with the lender. Where are you in Virginia? Drop me an email at support@mortgagereliefformula.com if you are in the Fairfax, VA area.

warmly

–Richard

We have two condo's in Hawaii that are investment properties. Now that flights are so high, we aren't able to rent for the same amount as the long term tenants paid that just moved out of both. There are 260 condo's on the market. We would be upside down 1300 a month when rented. We've had them on the market since last November with no bites. We stopped paying on them three months ago. Also, we have a rental home in Reno,no equity, that had an eviction last month and was vandalized. We did all we could to clean it up but it's still thousands in repair costs so it's now vacant. We have no seconds on any of them. We have our own home, no equity and have taken in a tenant to help with the mortgage. We have a rental house in Redding we are upside down on about 300 a month, no or little equity. We have a lake lot that we pay 330/mo on but the note expired July of 2006. We have 20k in the bank, no credit cards, no loans, no other bills at all. What's best for us; short sale, deed in lieu, bankruptcy, walkaway? Two attorneys I've talked to do not know of the walk away theory or insolvency. I am going to a third attorney while still struggling for a short sale with the bank on the two condo's with no resolution. What do we do? By the way, we barely make ends meet on our own personal expenses which are at the lowest they can go. We have always relied on the sale of a property to put money in the bank to cover our upside down rental expenses. HELP!

Wowzers. Thanks for posting. I can't give advice in specific situations. But if I were in this position, I would do short sales. If you can't pay any of the payments, then don't. Work on short sales and you can do this yourself. You don't need an attorney. I would always consult a bankruptcy attorney in a situation as you describe. Short sale is best if it can be done and it isn't that difficult. Just takes knowledge and perseverance. Get my Mortgage Relief Formula course while it's still very cheap,  and you will be able to do your own short sales work and if you hire someone you'll know what they are doing or should be doing.

Believe it or not, this is a great time to make money in real estate. You can solve your problems yourself, and then make money helping others do what you have done.

warmly

–Richard

Hello,

How are you? We have a property that was bought as an investment property in WA state. The foreclosure date has been set for DEC. 4. We have an offer on the property for $170K less than what it was bought for one year ago. I'm concerned that a deficiency judgement would add that $170 to our personal liabilities. Do I need to be worried or no, under what RCW do they have legal recourse, or do I? Since it is an investment property do they have the ability to come after our personal residence? Thanks ahead of time for your help…: )

This is indeed a great site.

I have a question I assume applies to many people. I have an invesemtment property in NC that is tanking. I live in DC. I believe any foreclosure or defincieny judgement is dictated by the rules where the property is (NC). How does the fact that I live in DC impact how this could play out?

Our primary residence is in California. We have two rentals in Hawaii and one in Nevada we stopped paying on and they are not rented. I talked to a CPA attorney yesterday and he said go for a deed in lieu or bankruptcy but not a short sale. I've tried for a short sale for months with no results. He said that all three would have to go for a deed in lieu or nothing, if not go for a bankruptcy. I think that's where we're heading. Do you know if Hawaii is a recourse state or not, judiciary or non judiciary, deficiency state or not? Same for Nevada? What about our one action option? Also, does it change things if they are rentals? We are getting so many different answers. I emailed you before and really appreciate your help.

Hello. Do you know what is the percentage of nonrecourse mortgage debt in the total outstanding mortgage debt nationwide? Any estimate, educated guess? I can't find any statistics on this. Thanks!

I don't know the answer to this.

warmly

–Richard

I purchased a townhouse in Woodbridge, VA in 12/2005 for $396K. I had to relocate to the west earlier this year for work and was not able to sell the townhouse for a listed price of $328K. I have the townhouse rented but have a negative $1,200 monthly cashflow. I would like to buy a primary residence where I live now but I can't sell the house for what I owe on it.

Is Virginia a non-recourse state and what would be the ramifications if I allowed the home to go into foreclosure?

IN BPO's do banks look at some broker's real estate companies as more credible, and what about real estate appraisers?

I'm not quite clear on what happens in Virginia. If you do a short sale, does that mean the lender cannot come after you for the deficiency? I think my loan is a deed of trust. If there is a judicial foreclosure, can the lender come after you when you have a deed of trust?

I have read that if both your 1st and 2nd loans are with the same lender,
when they foreclose on the 1st, since they also own the 2nd it changes
their ability to sue for it. Are you familiar with this?

Also, please explain what is meant by non-recourse for purchase money in
the 580b rule since it dosen't mean what most people seem to think it means?

richard,

i am interested inyour mortgage relief package. i would like to learn how i can reduce my credit card debt and do a short sale if it comes to it. i live in california. i want to do a loan mod on first and second loans. that is not going well. first loan has told me i could be considered for a short sale. my question is: before the whole short sale process, or foreclosure if it came to that, begins, and i am eligible for another loan, and purchase another home, can the second or first lenders come after me. i understand that the second will most likely will, but i am not an investor and the new home will probably have negative equity right off the bat anyway. i plan on using a co-borrower and he wants to be certain that they will not come after him also. he has his own home and other properties. but they are not worth much. he lives in the mojave desert area and properties are not worth much there. thanks.

Dear Richard,

I have a condo in Las Vegas that I got on stated income, without verifying tax returns, and i am an artist and cannot afford when the arm comes due next year. i don't know what to do! i don't want to lose my home, i have made all the payments on time, i am 61 years old and i wanted to know if I should be joining a CLASS ACTION LAWSUIT AGAINST COUNTRYWIDE who made me this loan and made me pay down the interest with my savings so that i could keep payment under $700 a month which have gone up now thru the HOA…..
and the H.O.P.E. program….should I be doing that?
PLEASE HELP ASAP!!! MANY KIND THANKS. Desperate

Hi Richard,

I live in Las Vegas. I'm planning to stop making payments on my 4 rentals, (1 in California & 3 in Vegas). I don't want all the stress of doing short sales. I'm planning to call the banks once I'm late, & ask to do a deed in lieu of foreclosure. So, if they agree to the deed in lieu, will that be considered a release from recourse?
Also, I've invested in oil & gas joint ventures, mineral rights, royalties and I have a large brokerage account. They don't show on my credit report, which shows me as having a huge debt to credit cards & a HELOC which is not even secured by a house,(once the house sold, B of A didn't close it & said I could use it). So, is there any way they'll know about these assets?
And as far as the deficiencey judgement goes, in case they don't accept my request for a deed in lieu, after 6 month following the foreclosure sale, & they don't apply for the deficiency judgement, is that it? Will I be off the hook forever?

Thanks,
Steve.

Hi Richard, I have a quick question regarding non recourse states and rental property. If the property is in a non recourse state, and the buyer/owner defaults on a first (there is no second), and the buyer/owner has substantial other holdings, can the lender choose to pursue the buyer/owner with a deficiency judgment for his other holdings ? Thanks for your help on this.

No, they cannot.

However, take California as an example. A lender theoretically can foreclose through the court system, rather than the private non-judicial foreclosure method. If they foreclose through the courts, they could get a deficiency judgment. I do not know of any lender doing this due to the redemption period, expense, etc.

warmly

–Richard

I live in Ca. and the value dropped to 100k below the loan amount. I doubt the lender will do a short sale so if I walk away can they come after me for the difference? I did re-fi over a year ago and did cash out to pay off a few things.

Richard,

You're just a good person who wants to help people. Thank you so much!

I bought my home in Colorado in Sept. of 2006 for $185,000 with nothing down. I refinanced in Sept. of 2008 and took out $5000 in cash. My new loan balance is $195,000. There is no second mortgage. Countrywide bought my loan in October. I have not yet made my January payment as my income is dropping significantly next month. I have been approved for an apartment and I intend to move in to that apartment in March.

If I understand you correctly, Colorado is a non-recourse state, and a lender like Countrywide will not go after you for a deficiency judgement unless you have significant other assets? Is this true? Because when I asked a real estate attorney about this today he said it is not true, that they could go after me and garnish my wages (limited through they are).

I do intend to go for a deed in lieu and a short sale, but I do need to know if Countrywide can go after me for the deficiency if these strategies fail.

Thanks in advance.

Hi I am a little confused on whether the Rhode Island is a "walkaway" state. I do have assets (another house) but may need to walk away from the other..
Can they, or will they , go for a deficiency judgement?

Could you clarify ? thanks

Like so many, I can't sell my house. If I rent it, the rent will only cover about 2/3rds of the payment, and I will also have high maintenance and property insurance & taxes to pay as well. I'm in my late 50's, so-so health, unemployed. It looks like a job is on the horizon, but at 1/3 of my previous pay. I live in Hawaii, which has a very high cost of living. COL is certain to skyrocket further in the coming months. I don't have a lot of assets, especially since I've been unemployed for several months. I'm wondering if there is a state where I can safely buy a cheap little house or apartment with the last of my savings and not have it seized later due to a deficiency judgment from Hawaii? Please don't lecture me on any morality issues. I simply can't pay the mortgage for much longer and am very worried about being old and poor and homeless in the US. If there is a state that will not enforce another state's mortgage deficiency judgment (especially on a personal residence), I might at least have a place to live out my life and be able to survive on low income. Thanks in advance for any help you can provide.

Thank you for your question.

I wonder if your fear is misplaced.

I'm not sure banks have an appetite for coming after people for deficiency judgments, if folks are without assets. Seems like you should be able to do a short sale. Then you are in a position to negotiate a small or even negligible amount you would be paying over time, even 5 or 10 years. And you could move on with your life without fear of being served with a complaint and having a law suit to worry about.

I would strongly encourage you to do a short sale.

warmly

–Richard

Hello, I have a second home in Las Vegas (I live in the state of Washington and have a home with little equity.) I can no longer afford the payments on my las vegas home.

I have tried to do a loan modification (it is an interest only loan and their modification was simply pay up all fees and fines and they would extend the "life" of the loan which is essential the life of eternity).

Then I tried to do a short sale and was denied (I have no equity in the Las Vegas house.) Then I tried to do a DIL but about a month into the process, they proceeded with forclosure on the home. The home is to be sold in six days, on 2-9-09.

My loan is actually two loans, the second rider has agreed to accept a small payment of $6,000 and allow me to walk away from it, however the primary loan is for just over $300,000, not nearly what the home is currently worth or will likely sell for.

My question is, what is the liklihood that the lender (Aurora) will come after me for a deficiency judgement. I understand that they have 6 months to do so? If they do, can I negotiate it down somewhat? If I pay a deficiency judgement, wil I in fact become now a partial owner of the original value of the loan? (In other words, kinda like a post-dated equity sort of situation?) Thank you, I find your blog very enlightening and helpful,

Sincerely Sharon

Thanks for the great info! I live in Las Vegas and have 2 houses. The first is the home where I used to live, upgraded to a home with the idea to sell after we moved out… unfotrunately, the market took a tumble as we packed boxes! Now we have 1 mortgage on a small home that we are renting (taking a $400 loss each month) and a first mortgage and HELOC on the larger home. We are upside down by about 50% on both houses. We are worried that even if we can short sale one of the homes, we are left with a house that we are upside down on and looking at bankruptcy anyway! Do you recommend for people to try to short sale two houses at once?
Thanks again.
Katie

Mr. Geller has been very gracious to respond to the many posts that he has. I found one other very active blog which will be of immense value to many who post on this forum:

http://www.loansafe.org/forum/deed-lieu-foreclosure-do-you-need-help-walk-away/

I have two rental properties–one in Michigan and the other in Mississippi.
Two questions:
1. There is a first and second on the Mississippi property. Just want to verify that because MS is a Non-Recourse state they can't get a deficiency judgement on the first, but could get a def. judgement on the second? (Both are held by the same lender)

2. There is only a first on the Michigan property. I do have other assests. Will they obtain a deficiency judgement?

I have a rental property in Hawaii (purchased 2006) that is upside down by $150-180k and am close to not being able to keep afloat. I am not yet deliquent on a payment. I live in TX now and have my primary home here. I have no assets other than my car, primary residence (protected by TX homestead law) and my 401k and IRA. If I walk away from the Hawaii property, what are my liabilities? I believe that Hawaii is a non-recourse state, and I have no assets that they can come after (I'm assuming that an IRA or 401k is protected.) Also, what are my tax liabilities if I allow foreclosure? Lastly, is there an "average" hit that one's credit score takes? I have a credit score of 800 and am wondering if it is going to get damaged as badly as it would in Chapter 7? Thank you for the help, it is most appreciated. Tim

Why not do a short sale? You will come out a lot better credit wise. It isn't that hard to do if you find some good competent help. That's what I would suggest you do instead of walking away.

warmly

–Richard

Hi, My husband and I purchased our [California] home at the peak of the market in 2006. This is the only piece of property we own and it's our primary residence. We are under water by 375k. We put 10% down and have a first and a second mortgage. The second is a 30/15 loan 30 year fixed. We have not refinanced and can't because we owe more than the house is worth. The bank denied our loan modification request. I am no longer bringing in any income and we are taking a hit every month. If we were to walk, would we be liable for the second mortgage? Could the bank come after us for the second? Thank you very much.

You would be liable most likely for the second. You can negotiate with them and come out pretty good. A short sale is far better than a foreclosure. I would encourage you to try a loan mod again. Did they tell you why they turned it down? I would say it is normal to get turned down but persistence really counts.

warmly

–Richard

Richard Thanks for the information. I'm about to lose my job. I can stay afloat a few months before I'm in trouble. I'm making a move to the other side of the country (currently in Atlanta, GA moving to CA). I pay about 2100/mo and I expect I could rent for about 1500/mo. I'd be happy to not foreclose and rent the property if I could lower the difference to about 200/mo and then sell the property when the market improves. My question is this. What recourse does the bank have if I foreclose? I expect that if I did a quick sale, I'd have to sell for about 30k less than i owe and if the bank forecloses that they'd get about the same level. I've read that a quick sale hurts your credit just as much as a foreclosure does. If that's the case, what motivation is there for me to bother with trying to unload the property? I'm fully underwater either way, and if they can't sue me for the difference…is there something that I'm missing?

Short sales are way better than foreclosure. You void having a foreclosure on your record. You can negotiate how the credit is reported. You can eliminate a deficiency or make it much smaller. It is far better to do a short sale. In some states the lenders don't have recourse when in first position, but even there a short sale is kinder on your credit.

warmly

–Richard

Hi Richard,

Thanks so much for your response. I greatly appreciate it. The only reason the bank gave us for denying our loan modification request was that the investor was not interested. They sent a letter stating that our options were a short sale or foreclosure.

I am still a little confused about the second mortgage. Since it is not a HELOC and it was used to purchase the home, I am trying to understand why we would be liable for it if we ended up in a foreclosure situation. If you would happen to have further information to help clarify, that would be wonderful.

Thanks again!!

Richard. Thanks for the reply. One follow up. Can you confirm that if it is a non-judgment/recourse state that they can not seek in court a deficiency against me?

Thanks once again

Your web site is very informative. Everyone has problems and needs your opinion, eh? I live in Michigan, my loan is serviced by American Home Mortgage Services (AHMS). trying short sale. not much luck getting through to lender to cooperate. will keep trying meanwhile looks like MI is a recourse state. Any way for me to limit my damages. I should add that this is the icing on the cake because a business associate stole $$$ from my company and bankrupted me 5 years ago. I am four years discharged from bankruptcy. I really dont want to go through that again. any other solutions. I will gladly buy program if there is a chance to try some other strategies to cut liability to lender. thanks so much

If you really work at getting the lender to see things the right way, you can often get the short sale approved. I would not give up on this. Most people who do short sales get a "no" at first, primarily because the lender feels the offer is too low. Actually, the "lender" is a servicer and that means, they have to go to someone else, typically the investor who holds the note, and get them to give your deal the nod. This is where things fall through the cracks. And where persistence really pays.

warmly

–Richard

I purchsed a motor home in Arizona. The lender is in California. I am an Idaho Resident. If in the future I am unable to make the payments on this unit is it possible for me to return it to the lender and not be liable for any deficiency.

hi i refinanced my house last year but didnt get any money out of it. i live in California. is my loan recourse or non recourse?

If there is one loan, a note secured by a first deed of trust, and if it is lost in foreclosure, there is generally no liability in California, so no recourse. There are a few complications but in general this is true.

warmly

–Richard

So, in Nevada, If I declare bankruptcy and walk away from my home, as a recourse state, the mortgage company will come after me for the difference?

Not necessarily. If your bankruptcy covers any judgment, or is done after the foreclosure is complete, then it should cover any residual liability. I am not a lawyer and you really should spend an hour paying a good bankruptcy lawyer to look at your situation and give you a professional opinion. It is money well spent. I like to find a lawyer who does almost 100% chapter 7s simply by calling around and asking. I prefer chapter 7 because it succeeds much more often than 13s which mostly fail and leave an even worse mess behind in many cases.

warmly

–Richard

Terrific site that gives so many of us hope! Thank you for sharing your knowledge. I purchased our CA home a month before marriage. I am the only one on the note and deed. The note was a stated income 5/1 ARM. Recipe for disaster when the economy tanked, income disappeared, and house value plummeted to $150K less than owed. I'm hearing that mods forgiving this much are nonexistent (it's more like $10-15K max if they even consider it). If so, short sale seems to be the best option. Questions that haunt: 1) can/would the bank come after assets that are solely in my husband's name even though he isn't on any of the loan paperwork? 2) Does the stated income aspect play into the lender's decision to come after me for a deficiency? I feel I'm the only one going into a short sale with a stated income loan but, in reality, they're probably pretty common. Seen outcomes to situations similar to this? Thank you!

Hi,
I live in California and currently I am in the process of giving back the bank a Deed-in-Lieu of forclosure for land (dirt) that I purchased in Nevada. The bank has agreed to this. However, has advised me that based on the recent appraised value of this land, and the difference of what is owed on the property, that they will be sending me a 1099C for taxes purposes.

Since Nevada State is a recourse State, and the bank is issuing me a 1099C (tax wise, I'm taking a huge hit with that alone), could they ALSO come after my California assets?

Bottom line, can they do both, or just one or the other?

Thank you!

I bought a mobile home (in a park) in California 3 years ago and currently owe 61K, but it is now worth about $30K (maybe even less). About a month ago I found out that my company will most likely not survive our current economy and I will most likely lose my job within 1-3 months. In an effort to make sure that my family still has a roof over their heads and something to eat, I went ahead and decided to purchase another home for $60K. I now plan on just walking away from my first home which I've lived in for the past 3 years. Other than the new home which will complete escrow within 2 weeks, I really don't have any other assets. I never refinanced or took out any other money on the first home - do you think they will come after me due to the second home? What are my options?

You help is greatly appreciated!

Just a quick THANKS for this presentation. Good information. — James

Hi - I've read this whole column of questions and answers and learned a lot. Thank you. However, I have a condo in Phoenix that I'm unside down on. Since buying it, I have moved into another state and purchased another home. If I walk away, can they come after my equity in another home — there is very little. Actually, if my PHoenix place is rented, I can afford to cover the $500 difference between rent and my expenses but don't wish to keep throwing money away. What are your suggestions.

You might consider a short sale. That would get you out of it. Alternatively, a loan modification might be possible. Have you discussed that with your lender?

warmly

–Richard

Thank you for your excellent presentation. I am sure it helps many folks like us. I refinanced and took cash out of my primary home in California and used the proceeds to buy another home due to a job change and relocation within the state. I was hoping that I will be able to sell my previous home in 6-9 months. We could not sell it for 18 months and now ended up renting it. The rent only covers 50% of my expenses. We have only one loan (1st mortgage) on that home. But it was a cash-out refinance. The difference between its loan balance (400K) and its current market price (325-350K) is about 50-75K. We have two other rental properties without any mortgages and some other investment assets in mutual funds. In California if we were to short sale that home can the lender come after our other liquid and non-liquid assets? One factor in our favor is that we only have one loan and the difference of 50-75K is not so huge for the lender. We will appreciate your help. Thank you very much.

In California, if you let a first loan foreclose, they
use a non-judicial process, a trustee sale, to foreclose.

warmly

–Richard (keep in mind I am not an attorney,
and may be wrong. You have to do your own due
diligence please.)

Hi Richard, I bought a condo in California several years ago using 2 loans to pay for it. A couple years ago I was able to refinance 2 loans into just 1 loan (based on high appraisal value when the market was peaking) It has been our primary residence for over 5 years. Our financial situation has improved recently, and we just bought a house down the street using an FHA loan. We were able to qualify for this loan even with the current loan, though realistically, they don't take it account all of our other expenses (bills, childcare, etc.) and we'd be very hard pressed to make both payments. The original plan was to rent, but seeing that the rental market out here isn't too hot and rent wouldn't cover HOA, property tax, etc. we'd like to understand if short sale of the condo is even an option. Will the lender for our condo even entertain a short sale once they see that we recently purchased a home? Can we expect that they would want to drain our savings - can they do this since we have a refinanced loan? Will they be able to sue us or come after our assets? Thanks Richard Casey

Short sale is an awesome option, Casey. In California they just about always pursue trustee sale foreclosure, which does NOT allow them to pursue you, at least as far as the first loan goes. The second can pursue you. A short sale lets you negotiate with the first and second and come out pretty good. Fact you bought another house, well, so what. They just want to cut their damages down as much as possible, and so do you, so you should be able to reach agreement. Try my Mortgage Relief Formula course which teaches short sales and all this stuff if you feel it would serve you.

Good luck, I think you'll be fine, but don't just ignore this or try to walk away. The second can come after you.

warmly

–Richard

If I live (primary residence) in a non-recourse state (VA), but my second home and my mortgage is in a recourse state (PA), can they come after me for deficiencies?

Hey Richard. I have three houses, 2 in Orlando that are a little upside down, and one in las Vegas that is 60,000 upside down. I would like to walk away from my Vegas home. I make 63,000 on paper and work for the Department of Defense overseas in Japan. I am able to lose the 30,000 a year on this home, but simply do not want to. What is my best move? I get free rent among other benefits working for the government overseas. Can they see the benefits that I receive by researching or is this impossible for them?

Richard , I apologies for posting on your site, if you would like to delete this, feel free, and you can answer it yourself, but I thought he should know this, as I negotiate many short sales here in FL and have come across this.

Michael Hogan,
I just want to mention this to you, since you said you worked for the department of defense. If you have a security clearance, you MAY lose it if you have a foreclosure on your record, thereby losing your job. Think carefully before walking away, you would be better of short selling the home(s). Good Luck

is massachusetts a non recourse state? how do I tell if my mortgage is non recourse ? can you really get sued for mortgage fraud if you buy a new home and the renters of the first back out of the agreement ?

is texas non-recourse state? I am confused with the list above.

we are 69 years old, he just lost his job, so we have no way to pay mortgage, we have social socierty which pays other bills, we have moved out of house, and are behind on 6 months, they raised our payment by adding 12.00 for starting over with putting late payments on arrears, It is a FHA loan, so what happens to us now, we can't afford any of it, will we be charged with what the house is short on sale, we tried to sale it , not one taker, It is a 4000 sq ft house and part mobile home and add ons, hard to sell, what do we do now I have told them we will sign deed over to them, they won't answer that, what do we do now. where do we stand, since this is a recourse state, no second, help please

Hey Rich,

Based on what I'm reading, it sounds like in CA it's a non-recourse state, as long as the loan is considered a "purchased money" transaction. What if I initially bought the property as my princial residence, but later down the road I decided to make the property a rental property. Will this still be considered a non-recourse purchased money loan?

Thanks!

i just forclosed in arizona. with a 80/20 loan the 20% loan was for 40k we took out 30k in equity on it. so now its 70k and the bank called me saying im still responsible for that portion is that true???