Recourse Loan Or Non-Recourse Laon?

Question

I am facing foreclosure on my home. I used 100% financing to purchase my home. It was strucutred as an 80/20, with the 2nd being a Home Equity Line Of Credit (HELOC). Now ,I know in California 1st mortgages are non-recourse. I am a bit confused and have gotten mixed feedback on the HELOC. Some say that all HELOCs are recourse loans. Others are telling me that only HELOCs where you have pulled against your equity are recourse, while a HELOC used as a 2nd mortgage to purchase a home is non-recourse. I HAVE NOT refinanced either of my loans and I have not used my HELOC to pull cash out. I simply used as a 2nd mortgage as recomended by my loan officer. Anyone have the answer?

Answer 1

Read your contract. It will tell you if the loan is recourse or non-recourse.

And it most definitely DOES make a difference if it is or not when it comes to the 1099-C and Cancellation of Debt income with the IRS. A non-recourse loan does NOT trigger a COD income event since once the loan is foreclosed upon there is no remaining debt for you to pay, even if the proceeds from the sale are not sufficient to cover the outstanding balance. If there is no remaining debt to pay, there is no COD and therefore no taxable event. PERIOD!

Answer 2

What Nancy Kay answered is correct. I also want to add that you probably signed something in your loan docs that stated that you allow your lender to sell your loan. And as Nancy Kay put it... it is being "serviced" by someone else. You've been unlucky because your loan has changed "servicers" often. You probably didn't have a choice of whether to sign it or not. Most lenders won't fund the loan until the entire package (including the "Notice of Assignment, Sale or Servicing Rights" or "Loan Servicing Disclosure") is submitted to their office. So basically, you either sign it or you don't get your loan.