Recourse & Nonrecourse Mortgage Loans

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Recourse or non-recourse loans are a topic that may never come up while you’re applying for your mortgage, but it’s nonetheless important to know what they are. They’re not a type of loan like fixed rate or adjustable rate, nor are they conventional or government-guaranteed loans like FHA and VA loans.

Whether a mortgage loan is recourse or non-recourse depends on the lending statutes in the state where you buy your home using a home loan. Nolo.com defines a recourse state as that which allows the lender to pursue a deficiency judgment in court. A deficiency is typically the difference between what is owed to the lender and what the lender can collect through foreclosure. This means that in recourse loan states, the lender is likely to have “recourse” to collect the debt if you default on your mortgage. If the amount you owe on your mortgage is greater than the amount the lender can obtain in a foreclosure, you could be pursued for the deficiency.

Generally speaking, in a non-recourse state, the lender can neither obtain a deficiency judgment nor collect anything beyond what the foreclosure sale of the property may bring. According to Legalmatch.com, there are currently 12 non-recourse states: Alaska, Arizona, California, Connecticut, Hawaii, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah and Washington.

Keep in mind that each state has different rules about deficiency judgments, so to learn more, contact your lender or your real estate attorney.

 

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Posted in Homebuyer Advice.