Do you understand these statements and why? If not, keep reading—three quick articles follow that will clear things up.
- “If I gift my son more than $17,000 this year, I will owe taxes.” Wrong
- “It is good tax planning in most cases for a Senior Citizen to gift a long-owned home to avoid probate.” WRONG
- “A lender can get a judgement against a borrower on a nonrecourse home loan by doing a Judicial Foreclosure.” WRONG
Still confused? Don’t worry. Read the three short posts, one after another for clarification.
NONRECOURSE LOANS: CALIFORNIA CODE OF CIVIL PROCEDURES 580a
- This code section is important for every homeowner in California. It means the lender on most loans cannot get a deficiency judgement. They must look only to the collateral (the home).
- An excerpt from the Code: “No deficiency shall be owed or collected under a deed of trust on a dwelling for not more than four families given to a lender to secure repayment of a loan that was used to pay all or part of the purchase of that dwelling, occupied entirely or in part by the purchaser”. The loans are nonrecourse.
- This is a California Code. Currently, there are twelve states that have some form of Nonrecourse Regulations. They are: AL, AZ, CA, CT, ID, MN, NC, ND, OR, TX, UT, and WA. Interesting to me that 10 of the states are west of the Mississippi and there is no Florida, New York, Indiana, or Wisconsin.
- The list of states can change if the State Governments decide to do so and the regulations vary from state to state. I have been told that California protects only homeowners while Texas protects only home equity loans.
- An excerpt from CCP 580b concerning refinances: “A new credit transaction shall be deemed to be a purchase money loan except as to the principal amount of a new advance”. This is a change that was effective on January 1, 2013.
- In California the nonrecourse rules cover 1st trust deeds, second trust deeds, third trust deeds, land sale contracts, All-inclusive Trust Deeds, and so forth.
- What does this mean in simple terms? All the people who bought homes before the Great Recession had in most cases Nonrecourse Loans. They could have “walked away from the property”. It would have eliminated many sleepless nights and arguments.
- At the time the homeowners were warned that their credit would be ruined for many years. This did not happen. It was not a very long time until lenders were making loans to homeowners who had lost their home to foreclosure. “Lenders have to lend”.
- The lender cannot get a judgment on a Nonrecourse Loan even if they use the famous Judicial Foreclosure.
- If the lender uses a Non-Judicial Foreclosure (Trustee Sale), they cannot get a judgment even on a Recourse Loan,
- A lender might be able to get a judgment if they can prove BAD FAITH WASTE, defined as reckless or malicious injury to the property, reducing its value.
Let’s all of us try to educate the generation that will be next buying homes and tell them about NON RECOURSE LOANS. They will be glad you did. So many homeowners and prospective homeowners do not know these regulations. Sad but true.
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