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

By
Real Estate Agent with McConnin & Company Realty

Here is a great question I got the other day from an on the ball Realtor.  I have told him I am going to research the case law to pin this question.  I already have my basic answer but if Indymac were coming after me I would not feel too comfortable with out some case law.  I will get to it and report it here as soon as I have time to look it up. 

In the mean time, how would like to make the banks argument and who would like to make the homeower's argument.  And what does a sold out junior have to do to recover?  And, finally what does this case mean if you are attempting to negotiate a short sale in san diego or some other california city?

 

Is Indymac Bank bluffing?

A home buyer got 80/20 purchase money financing for an owner-occupied single family residence in CA (nonrecourse, right?). The 2nd TD was done by Indymac Bank and its terms were written as a HELOC which started its life 100% maxed out with all the purchase money HELOC funds going to the home seller, none to the buyer/HELOC borrower.

Now, 2 years later, a Notice of Default has been recorded and the property is worth less than even the 80% 1st loan.

Jon Honish with Indymac Bank, the owner of the 2nd TD, tells me their corporate attorneys will pursue a deficiency judgment against the borrower after the 1st TD forecloses. Is he bluffing or is there a precedent supporting this legal argument of which I am not aware?

 

 

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Location:
California San Diego County
Groups:
California Short Sales, REO's, and Foreclosures
Tags:
foreclosure
sold out junior
san diego short sale
non recourse

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Rainmaker
54,871
John McConnin
McConnin & Company Realty

Was the property your Residence at the time of the purchase? 

What do you mean you have a judgment?  

Did the second sue in court? 

Do you have the closing paperwork showing when and how the heloc funded? 

August 30, 2010 01:42 PM
Rainmaker
906,157
Tony Marriott
Associate Broker, REALTOR
Haven Express @ Keller Williams Arizona Realty

Any and all claims made by an agent in an effort to encourage / convince a prospect to work with them should be truthful.  Lying is unethical, dishonest and could be considered fraudulent.  Those that lie about Short Sale expertise are some of the worst - as their lies can lead homeowners to financial disaster.

September 02, 2010 08:18 PM
Anonymous #71
Anonymous
ryantyler111

  • I appreciate the concern which is been rose. The things need to be sorted out because it is about the individual but it can be with everyone.

**********

 

ryantyler111

 

 

<a href="http://www.equityloans4all.com" rel="dofollow">Equity Loan</a>

 

November 18, 2010 11:49 AM
Anonymous #72
Anonymous
ryantyler111

  • Hat’s off. Well done, as we know that “hard work always pays off”, after a long struggle with sincere effort it’s done.

**********

 

ryantyler111

 

 

<a href="http://www.ourbankloans.com" rel="dofollow">Bank Loan</a>

November 18, 2010 03:51 PM
Anonymous #73
Anonymous
Wendy

We purchased our home in 2006 in N. California.  We had a 80/20 loan with Countrywide and the 2nd was a HELOC with Indymac.  We never withdrew money from the HELOC.  It was only used in the purchase of the home.  We tried to short sale the property for 18 months without success.  We allowed the home to go into foreclosure and was finalized in March 2010.  The HELOC thru Indymac shows up as a missed payment 120+ day every month.  The first mortgage is listed as closed/settled.  Indymac is not sending us any harrassing letters requesting payment or calling us for payment but as stated above, negatively hits our credit every month.  Is this a common occurrence and do we have any legal right to have it stopped?  We are trying to improve our credit score but we cannot make any progress when the "late payments" continue.

 

 

December 11, 2010 05:45 PM
Rainmaker
54,871
John McConnin
McConnin & Company Realty

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.

 

December 15, 2010 08:31 PM
Anonymous #75
Anonymous
no equity short sale

nice information.

 

December 30, 2010 07:12 AM
Anonymous #76
Anonymous
Sandy

Husban wanted a Divorce so had to refinace our home loan in my name to give soon to be X husband $100,000 for the divorce settlement. He had expensive attorney and he earned twice what I did. Day he walked out with his $100,000 the well went dry. Got a HELOC to drill a new well and then the housing market dived. Never could afford the now inflated home payment. Moved out of home but bank (Freddie Mac) still has not foreclosed after 1 year but HELOC bank turned me into collections. What are the chances the Collection Agency who bought the defaulted HELOC loan will garnish my wages? HELP! (Live in California)

June 10, 2011 12:40 PM
Rainmaker
54,871
John McConnin
McConnin & Company Realty

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.   

 

June 11, 2011 05:42 PM
Anonymous #78
Anonymous
Tom F.

My daughter's condo is being forclosed on by B of A.  It was originally financed by Countrywide with a 1st and 2nd, all for the purchase.  She refied with Countrywide 2 years after purchase, with a new 1st and 2nd/Heloc, both with a fixed rate, all to pay off the original 1st and 2nd.  Are the new 1st and 2nd/Heloc non-recourse?  Thank you.

August 26, 2011 02:08 PM
Rainmaker
63,398
Barry Shapiro
Team VC Online, Keller Williams Realty

SB 931 and SB458 (Google them) will address these issues and, apparently, protect your daughter. There may still be time to stop the foreclosure, in order to complete a loan modification or a short sale.  Reach out if you'd like more info on these alternatives. 

August 26, 2011 02:25 PM
Rainmaker
54,871
John McConnin
McConnin & Company Realty

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. 

 

August 26, 2011 02:43 PM
Rainmaker
54,871
John McConnin
McConnin & Company Realty

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.  

 

 

August 26, 2011 02:55 PM
Anonymous #82
Anonymous
Tom F.

Thank you for the feedback.  My daughter does have some assets and doesn't qualify for a short sale.  Also she is close to the foreclosure date.  At this point I'm not sure what she can do.  She is very concerned about B of A coming after her after her condo is sold in foreclosure.

August 29, 2011 01:47 PM
Rainmaker
63,398
Barry Shapiro
Team VC Online, Keller Williams Realty

A deed-in-lieu of foreclosure can be written up to be absolutely certain that the debt will not follow her.  I am assuming she did not qualify (for a loan mod or short sale) because of her assets and income are too great. 

August 29, 2011 02:41 PM
Rainmaker
54,871
John McConnin
McConnin & Company Realty

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.  

August 29, 2011 02:43 PM
Rainmaker
54,871
John McConnin
McConnin & Company Realty

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. 

 

August 29, 2011 03:06 PM
Anonymous #86
Anonymous
Tom F.

Thanks again for the constructive feedback. 

August 30, 2011 12:02 PM
Anonymous #87
Anonymous
Elle

If a property is currently worth $500K and the first lien on the property is $600K and the non-purchase money HELOC is $100K.  Can a consumer just pay on the first and ignore the second idefinitely?  It seems unlikely the property will ever have value enough to cover any part of the HELOC.  What rights does the second have agains the borrower?  Can they release the lien and file suit for breach of contract?

December 13, 2011 10:30 AM
Rainmaker
63,398
Barry Shapiro
Team VC Online, Keller Williams Realty

Elle ~

The 2nd mortgage holder does not need to release the lien, and will not any time soon.  Depending on the circumstances, the 2nd lien may be willing to negotiate for a lower payoff -- i.e, in the case of a short sale or if you are able to convince them they are better off with less cash now rather than waiting for an unknown future payoff.  What will unfortunately happen is that the interest on the 2nd will balloon every month you do not pay, along with late fees.  As long as the lien is secured by real property, and as long as you keep making your payments on the first mortgage, the 2nd will actually gain a larger piece of the pie as time goes on (and the the first is gradually paid off).  I recommend you seek legal and tax advice immediately.  The best plan may be to negotiate a reduced payoff now, while you are still current.  Good luck!

December 13, 2011 10:46 AM
Anonymous
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Rainmaker
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John McConnin

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