Question about California HELOC


#1

Sean I saw this posting from you on another site -

wunsacon wrote: “I recall reading that 1st mortgages in CA are non-recourse but that home equity lines are full recourse.”

In practice there is no such thing as a recourse loan in CA, 1st, 2nd, heloc or otherwise. CA offers 2 types of foreclosure, judicial and non-judicial. Only judicial offers recourse, but lenders are VERY unlikely to use it as it takes forever to get through the courts, and then the owner still has a ONE YEAR redemption period. No lender wants to wait 18 months to 2 years in this market to get a house back just to get a judgment that may be difficult to collect anyway.

Sean O’Toole

Can you explain this further, because I see things on this site contradictory to this statement saying the HELOC company can come after me for money lost during a foreclosure? I live in CA and am about $150K upside down on my home, and would like to walk away. Primary mortgage is $365K and HELOC is $135K.

I also saw some postings saying to avoid recourse to not pay the HELOC, but continue paying the 1st mortgage. What are the implications for doing this? My credit would be affected for late payments, correct? Can they send this to a collection agency or is their only recourse to foreclose on the home?

Thanks for any help,
Chris


#2

The key thing to understand is that “recourse” means the right to come after you for the any balance after foreclosure, for the difference between what they received at the foreclosure auction and what you owed.
If you let the 1st mortgage foreclosure, they no longer have a right of recourse. The 2nd/heloc also loses their interest in the property, as it is wiped out by the foreclosure of the 1st. HOWEVER, the 2nd hasn’t foreclosed, and you still owe that money, and they can continue to try to collect it forever unless you have it discharged in bankruptcy or they fail to make collection attempts for an extended period of time.
Also note that a bank can use a collection agency before, during or after foreclosure. We have even seen banks use collection agencies to attempt to collect when they have NO right to collect. Only thing that will stop that is bankruptcy, or excersing your rights under the credit laws.


#3

It’s my understanding that if the HELOC was used to purchase the home then there is no right to collect.? However if the HELOC was taken out after the purchase of the home then they have a right to collect. MA has no right of redemtion.