What hapens if you don't pay?

[xy31_IHB]

<p>Sorry for my limited knowledge. I often see on that IR mentions individuals with zero or little downpayments "just walk away" and that the bank will have to pay the loss on their property. How does this work? </p>

<p>I guess once you can't meet payments anymore you just declare bankcruptcy? And then you are homefree (Apart from a bad credit rating I guess)??? Is that it? That seems a bit too easy....</p>

 

[screwrealestate_IHB]

<p>It can be a bit more complicated than that. I moved here from Florida last year and my house (primary) took 1 year to sell and I had to do a short sale whereby I ended up paying Chase about 15K of 50K I owed them. I talked to alot of people including debt collectors and laywers and had the short sale not worked it could have been much uglier. If you make over a certain amount of money you are not allowed to declare simple bankruptcy. If you decide to just mail in the keys, you can take a chance and hope they dont come after you but if you have an aggressive debt collector they can make your life miserable for a long time by slapping you with liens. If you try to declare bankruptcy a court will basically subtract from how much you make a reasonable living and then take the rest for 60 months. It used to be that people declared BK all over the place with no repurcussions but my understanding was that I reallllly did not want to do it after the law changes. BK and foreclosures can be on your credit score for up to 7 years (more like 3-4 I hear with good behavior) and the short sale will be off in 2 (also with good behavior). There are tons of resources on the web about it... </p>

<p> </p>

 

[irvine123_IHB]

in CA, your original first mortgage is nonrecourse - which means the lender can't go after your other assets to repay the loan. For example, if you have an original $1 million mortgage, while at the same time you have $2 million cash in the bank, the bank can't go after your $2 million cash. The only think they can do is to foreclose the property, and give you a bad mark on your credit. However, your second mortgage ( HELOCs) are recourse loans - which means the leader can go after your other assets, and potentially can go to the court to obtain judgement agaist you. Also, if you have refinanced your first mortgage, then that mortage just became recourse.

 

[TRock_IHB]

I think I remember reading in one of the other threads that if you want to stop paying on your mortgages, that the way to do it is to stop paying the 2nd mortgage first. Then the lender would have to decide to either go after your house OR go after your other assets. They can't change their mind after they make the decision. If they decide to try to take your house (?which they likely will), then you would stop paying your first mortgage subsequently. Since both lenders would then go for your house, you walk away and your assets are safe. I'm assuming there was never any refinancing previously.





Do I have this right? Please correct me somebody, if I'm wrong.

 

[qwerty_IHB]

<p>I dont think irvine123 is correct, the Q&A below summarizes california law. If someone does 100% financing - typically an 80/20 with the 80% being a regular mortgage and the 20% being a home equity line of credit, both loans are non-recourse. Typically HELOCs are recourse, except when they are used in the initial purchase of property since. <strong>


</strong></p>

<p><strong>Q</strong> <strong>4. <em>What is “nonrecourse” debt?</em></strong></p>

<p><strong>A</strong> Under California law, a debt is considered “nonrecourse” when a loan is made under either one of the following two circumstances:</p>

<p>(1) When the loan is made to purchase a one-to-four unit property and the borrower intends to occupy at least one of the units, or





(2) When the seller carries back financing for all or a portion of the purchase price of any real property.</p>

<p>(Cal. Code Civ. Proc. § 580b.)</p>

<p>In the event of default by the borrower, the lender, or financing seller, is restricted to recovering the property with no right to proceed against the borrower for any deficiency.





<strong>Q</strong> <strong>5. <em>What is “recourse” debt?</em></strong></p>

<p><strong>A</strong> Under California law, a “recourse” debt is one in which neither of the two exemptions in Question 4 occurs.</p>

Examples of recourse debt are refinances of existing mortgages, home improvement loans, equity lines of credit, and loans, other than seller financing, securing a debt for purchase of property that is not an owner-occupied one-to-four unit property. The lender is not limited to taking the property back and the borrower may be personally liable on the debt. If the lender chooses to foreclose using a trustee’s sale, then the lender waives the right to go after the borrower for the deficiency despite the fact that the loan was a recourse debt.





Also, for you legal types here is the text straight from the california code of civil procedures paragraph 580b:


<pre>580b. No deficiency judgment shall lie in any event after a sale of
real property or an estate for years therein for failure of the
purchaser to complete his or her contract of sale, or under a deed of
trust or mortgage given to the vendor to secure payment of the
balance of the purchase price of that real property or estate for
years therein, or under a deed of trust or mortgage on a dwelling for
not more than four families given to a lender to secure repayment of
a loan which was in fact used to pay all or part of the purchase
price of that dwelling occupied, entirely or in part, by the
purchaser.
Where both a chattel mortgage and a deed of trust or mortgage have
been given to secure payment of the balance of the combined purchase
price of both real and personal property, no deficiency judgment
shall lie at any time under any one thereof if no deficiency judgment
would lie under the deed of trust or mortgage on the real property
or estate for years therein.</pre>