Last login: Thursday, April 1, 2010
I want to say how much I appreciate your efforts to inform the public about the plight so many homeowners are in. I myself have been through the short-sale process and it is a nightmare of misinformation, greed and heartbreak.
I called in earlier but couldn't talk on the air. I wanted to bring to your attention what was said on the March 22 show regarding purchase money mortgage debt and refinanced mortgage debt, otherwise known as non-recourse and recourse debt.
Your panelist Brenda Voet of the Franchise Tax Board stated on March 22nd, "...you(r) caller mentioned that it was the original debt on the home, and that could make it so that it’s not taxable for California also because there are two different kinds of debt that are normally securing the purchase of the mortgage. One is a recourse debt and the other is a non-recourse debt. When most of us bought our home, we bought into a note that was a non-recourse note and basically that said that all the financial institution can do is come after your home as security." (transcript at http://www.kpbs.org/news/2010/mar/22/...)
California is a non-recourse state, borrowers are not held personally liable for more than the home’s value at the time that the loan is repaid. The lender may recoup some of its loss through foreclosure or short-sale. However, the lender may not sue the borrower for additional funds. If the foreclosure sale does not generate enough money to satisfy the loan, the lender must accept the loss. These laws apply only to 'purchase money' loans (i.e. original home loans that are used to purchase property) in California.
Once a borrower refinances or takes out an equity line of credit the new loans are recourse loans. The legislation pending in California would help those people who are under water with these types of loans.
This is all very complicated and everyone's situation is different. A lot of banks are unaware of State laws and regulations and provide borrowers with misinformation. Additionally new rules and programs come out almost daily and add to the confusion. For many this creates false hope as they try to hang on to a home they never really owned. These are killer mortgages that will only drain borrowers of their money, dignity and dreams.
April 1, 2010 at 12:20 p.m.
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