Real Estate Law
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Thank you for your question. Was the HELOC taken out at the time your purchased your home?
No. It was a refinance.
Thank you for providing that clarification. Under California law, a lender cannot pursue a borrower for a deficiency balance resulting from a first mortgage used to purchase a residence. In California, purchase money loans made on your home are non-recourse. A "purchase money" loan is one where the money went from the lender, to escrow, and then to the seller or to pay purchase closing costs. If the borrower never refinanced and the property is still encumbered by the original purchase money deed, the antideficiency protection remains.
Your lender will likely be able to come after you for the HELOC debt because it is not covered by the antideficiency statute.
Fortunately for homeowners in default, you may not have to declare the forgiven portion of the debt as income. Recently California has extended a mortgage forgiveness tax law that allows taxpayers to exclude canceled mortgage debt on their principal residence of up to $500,000.
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