Is a second mortgae a recourse or non-recourse loan?

doris_ann_shaw · Joined: 25 Jul 2008 Posts: 1 1.39 Dollars($)

Our house foreclosed in March 2008. It was on the market over a year and the bank refused 3 short sale offers. I was a nurse and was put on total disability so I was unable to continue payments. I kept the bank aware of my situation. At the time I had the mortgage, a second mortgage and a HELOC. All loans were with the same bank. After the foreclosure only the heloc folks called to make arrangements which I told them I couldn't pay anything. I understand the heloc is a recourse and they could persue, but I'm wondering about the ther loans. I heard that if the loan is a non-recourse then it goes away at the foreclosure. Is it wise to try to settle for less on heloc? Atty thinks to wait till they get a judgment. Property is in Florida.

executivemortgageadvisor · Joined: 16 Mar 2008 Posts: 18 10.34 Dollars($)

A mortgage is not a loan; a mortgage SECURES a loan, and the loan is evidenced by a promissory note. So, the mortgage secures payment of the note. The degree of security a mortgage gives depends on the terms of the mortgage and the note, but a major distinction is between recourse and nonrecourse mortgages. A nonrecourse mortgage is one in which, by the terms of the note and mortgage, the mortgagee (creditor) agrees to look solely to the secured property to satisfy the note, in the event the note is not paid when due. That means that the mortgagee can seek to have the property securing the note sold and have the proceeds paid to the mortgagee to satisfy the note. However, if the proceeds are insufficient, the mortgagee has no recourse to the other assets of the debtor. Generally, a note is an obligation to pay and must be paid in full. So, unless a note is explicitly nonrecourse, the creditor can seek to apply any of the debtor's property to its payment (subject to bankruptcy limitations). The general rule therefore is that notes secured by mortgages on property are NOT nonrecourse. The major exception comes from the antideficiency statutes, common at least in the western states, that apply generally to mortgages securing loans on personal residences.

Good Luck

Robert Summers
Southwest Funding, LP Branch 777
41 E.37th Street
Indianapolis, IN 46205
317-925-1877 Office

Samantha

Hi Dorris,

As much as I understand, it depends upon the state as to whether a loan is recourse or non recourse. However, second mortgages are usually recourse loans. But it's better to check out the state laws.

Now after the foreclosure, the first lender should take away his payment first. I'm quite surprised that instead of the first and 2nd lender coming after the borrower, only the third has asked for the payment. You should have a talk with the first lender and inform him about the Heloc payments.

Hope this helps.

God bless you.

Samantha

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