I am not a lawyer. I was going to reply to rhizome (sibling post of yours) saying this really differs from jurisdiction to jurisdiction, but in my understanding, in most US jurisdictions the lender has no recourse (either none at all, legally speaking, or tends to get nowhere in practice). Is my understanding really untrue and the banks can go after your other assets in all US states?
Edit: A quick google told me that there are 12 "non-recourse states" for "most residential mortgages": Alaska, Arizona, California, Iowa, Minnesota, Montana, Nevada, North Carolina, North Dakota, Oregon, Washington and Wisconsin. https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mo...
Foreclosure procedures do depend a little on jurisdiction (ie judicial vs nonjudicial foreclosure states or both), but even within those non-recourse states you link to, lenders can in fact come for deficiency judgements between the balance of the loan and the fair market value of the property.
You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t. So why don’t all lenders go for the judicial foreclosure and for the deficiency judgement? Time and Money! It simply takes longer and costs more to go the judicial route and why do that if you ultimately can’t collect from the borrower?
The thing is the banks/borrowers have so much data, their automated systems are pretty good at knowing if they will likely be able to collect enough to cover the extra cost of the judicial foreclosure in which case they go that route and then for the deficiency judgement. Once they have that they can garnish wages, attach accounts, etc...
> You can find many articles about California, for example, where they will say someththing like “in California, in most foreclosures banks can’t go after borrowers for deficiency judgement”, but it’s misleading. California has both judicial and nonjudicial foreclosure, and judicial foreclosures allow deficiency judgments and nonjudicial foreclosure generally don’t.
This is more misleading than what it “corrects”, which is actually entirely correct for the case usually of interest (and which the articles are almost always specifically addressing), owner-occupied residential properties. Its true that California allows deficiency judgements for judicial foreclosures except as barred by the State anti-deficiency statute. But that statute prohibits all deficiency judgements for purchase-money or refinance loans for residential property with up to four units when the owner/borrower resides on the property (and, unlike most anti-deficiency statutes, covers second and subsequent mortgages for that purpose, not just first mortgages.)
>Is my understanding really untrue and the banks can go after your other assets in all US states?
My response is not misleading by any means.
Especially when that question came as a direct response to the same person who originally broadly stated you can just mail your house keys to the bank and walk away.
My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state.
I used California as a perfect example of a non recourse State that has both judicial/nonjudicial foreclosures and in judicial foreclosures allows...recourse (deficiency judgments).
Yes you included a few rules outlining where deficiencies would not be available, but the fact defiency judgments
are available at all - especially in California, which is ultra stringent even amoung non recourse states - is the much bigger point being discussed.
> My point is simple and fairly obvious...don’t mail your keys to the bank and think you can walk away, even if you are in a non recourse state.
Yeah, that's generally a fair point and there are lots of good examples you could have pointed to; California, however, isn't one of them.
> Yes you included a few rules outlining where deficiencies would not be available
A few rules, which happen to encompass the entire category usually discussed with the “mail your keys” thing: any single-family house you own, with one or more purchase or refinance mortgages, and live in.
(And, well, more than that category usually at issue, because it also includes small multifamily units with the same other conditions.)
>A few rules, which happen to encompass the entire category usually discussed with the “mail your keys” thing
No it doesn’t encompass “the entire category”. Even in California deed in lieu of foreclosure cases (eg the bank agrees you can mail your keys in) banks can and do obtain defiency judgments in 5% of such cases.
It reminds me of student loans, where lawyers and layman constantly say student loans are not dischargeable in bankruptcy. But they are. Student loans have a higher standard to discharge than most other debts. I guess people can say it’s misleading to say student loans are discharable -but they are- even if it’s a low percentage. The important part of the discussion is again it’s possible.
> No it doesn’t encompass “the entire category”. Even in California deed in lieu of foreclosure cases (eg the bank agrees you can mail your keys in) banks can and do obtain defiency judgments in 5% of such cases
A deed-in-lieu is an agreement—a contract supplementing the mortgage contract and agreeing it's terms—not a foreclosure, and whether or not a deficiency judgement is available is determined beitherms of the agreement (or the mortgage itself), not the foreclosure rules.
OTOH, the prohibition on foreclosure deficiencies on the whole class of mortgages at issue in California gives borrowers considerable leverage on getting a deed-in-lieu without deficiency permitted (or a short-sale without that), since in a foreclosure the bank won't get a deficiency and will bear additional costs that they don't have with the deed-in-lieu. But, yes, if you agree to give the bank privileges they wouldn't have in foreclosure because you are desperate to avoid foreclosure, you will need to fulfill that agreement.
Also, note that stats that aren't extremely new can be misleading, because the extension of the anti-deficiency statute to refinance mortgages as well as purchase money mortgages only happened in 2012, and cases take time to make it through the legal system. This affects both actual foreclosures and deeds-in-lieu, because without the foreclosure protection, the leverage for deed-in-lieu agreements wasn't there, either.
>A deed-in-lieu is an agreement—a contract supplementing the mortgage contract and agreeing it's terms—not a foreclosure...
A deed in lieu can occur without a foreclosure taking place, but it can also occur during the foreclosure proceeding (ie it’s a type of settlement within the active foreclosure case). But it’s not like the defiency judgment is memorialized in these agreements, the 5% I cite are statistics from the courts, this the 5% are court ordered defiency judgments...not part of the original settlement (deed in lieu).
You are not wrong a savvy borrower who may have potential liability for a defiency can include in the deed in lieu a waiver of the lenders right to pursue the diffidence, if any. But lenders don’t need to agree, and won’t if they believe they could collect. But again these deeds in lieu are negotiated instruments and not triggered by mailing keys to the bank.
>Also, note that stats that aren't extremely new can be misleading, because the extension of the anti-deficiency statute to refinance mortgages as well as purchase money mortgages only happened in 2012
Agreed, and I was actually going to bring this up before, because despite the additional protections against defiency judgments in the Code for 2nd mortgages/HELOCS courts in California are still upholding the lenders right to get a defiency after judicial foreclosure cases where the homeowner took cash out from refinancing 2nd mortgage/HELOC (and to pedantic - still subject to those limitations you added). Eventually this will be clarified through appeals and those protections will either be upheld or those laws won’t have as much teeth as a blanket protection for all such class of notes. I believe the 5% stats are for 2007-2016 for deed in lieu.
All this is so far beyond the pale of the actual discussion. And I think for the benefit of non lawyers, should be left to:
California is a non recourse state. Even amoung non recourse states California is known for having very protective laws for the borrower. Yet, even being a non recourse state and having some of the best protections for borrowers, mailing your keys/deed in lieu (whether during actictive foreclosure litigation or before the filing of any cases) carries risks of a deficiency. Nevertheless the idea of mailing keys wasn’t specific to California, and California was only used to highlight the possibility of a deficiency judgment in non recourse state. More generally the majority of states (38) are recourse states where the banks can come after you for the defiency as a general rule and amoung the 12 non recourse states, defiency judgments are allowed in at least some cases.
Edit: A quick google told me that there are 12 "non-recourse states" for "most residential mortgages": Alaska, Arizona, California, Iowa, Minnesota, Montana, Nevada, North Carolina, North Dakota, Oregon, Washington and Wisconsin. https://www.arklawgroup.com/blog/how-do-i-know-whether-my-mo...