Hello,My friend and I purchased a residential investment property in 2005 in Merced, CA. It was originally on 5-year ARM. My friend also took a second loan at the beginning and has paid off within 3 years. We have never refinanced the property. Is our loan considered non-recourse? In other words, if we default on the loan right now, will the bank come after our personal assets?Thanks
State/Country relating to question: California
In CA and in all states that have anti-deficiency statutes those statutes only protect homeowners who live in the property as their primary residence. The statutes do not protect persons who purchase investment properties (sorry). However, there is a requirement in CA law that if the lender forecloses on a property and the property sells for less than the amount to pay off the outstanding loans the lender must then request permission from the court within 60 days after the foreclosure sale in order to pursue you for the deficiency amount. There are so many foreclosures that many lenders do not bother with pursuing the borrowers into court -- however, there is no guarantee that they will not pursue you into court for these matters (and unless you have a business entity that actually owns the property and neither of you signed a personal guaranty of the loan, then you may be pursued for the balance).
Under the circumstances you describe above there are 2 statutes of limitation:
(1) 60 days after foreclosure or short sale on the first mortgage for the lender to go into district court and request that they be permitted to sue the borrowers listed on the first mortgage for any deficiency amount between the sale price and the original note. This is rare for a lender to do and if the lender does not do it then the lender forever loses the right to sue the borrowers for any deficiency amount between the sale price and the amount owed on the original note and mortgage.
(2) On any second mortgage or credit lines on the house, if there are no sale proceeds left to cover this (which is usually the case) this then becomes a personal obligation of the borrowers and the lender has the right to sue under normal contract law. Here, because this is a written contract, the statute of limitations is 6 years from the date of the breach of the contract (which would be the failure to pay date).
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While I wish I could have told you that there was no recourse on any of the loans, the law does not support my stating that and yet I hope that you can be fair and rate my answer below by pressing the third, fourth or fifth smile face and leaving either neutral (3) or positive (4, 5) feedback. I do not get a paycheck and I am paid absolutely nothing unless you press the third, fourth or fifth smile face below -- and
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13 years experience in RE Law, including LL/Tenant, contractor disputes, comm'l prop. issues
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