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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Ramsey Su who wrote (38384)8/10/2005 10:06:07 PM
From: Elroy Jetson  Read Replies (1) of 110194
 
In terms of 1-4 units, the topic of "Deficiency Judgments" in the event of foreclosure is quite complex and depends primarily upon state law.

My understanding of California law is that a lender cannot seek a "deficiency judgment" on the original "purchase money" mortgage. However, once the 1-4 unit is refinanced, or an additional mortgage or HELOC is added, the lender can sue for recovery of amounts not covered by the sale of the property.

In the past, lenders have rarely pursued this option as the defaulted borrower is unlikely to have other assets. However the new bankruptcy law, which allows lenders to attach the majority of the bankrupt's earnings for the next five years, changes the equation. In the next downturn, I expect to see many deficiency judgments filed against borrowers who assume they have "non-recourse" loans.
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