This is one of the most important things to know when you are considering short sale, what type of loan you have and what is the difference between recourse and non recourse loan.

When you purchase your home, most loans are considered as nonrecourse loan or it’s also called purchase money loan, which is secured only by the home and you are not personally liable for the balance if you do a short sale.

But when you refinance your previous loan then it is considered as recourse loan. Most second loans and home equity loans (known as HELOC) are also considered as recourse loans, which mean you are personally liable for the balance when you sell your house or foreclose and if the sale doesn’t cover all your loans.

Now, whether its recourse or nonrecourse, it also depends on the lenders, some lenders follow homeowners to collect for the remaining balance based on their business decision even on nonrecourse. It also depends on whether your state is a deficiency or non-deficiency state. It’s a whole different topic (deficiency and non-deficiency) which I will explain in my next blog.

If you are not sure whether you loan is recourse or non-recouse loan, then you can either check your loan note or check with your loan agent. So, it’s always good to know the difference between recourse and non-recourse loan.

If you are considering short sale then consult with CPA or tax attorney for any tax ramification before you list your house with any realtor.

You can reach me directly at (510) 366-9405 with any questions, I would be glad to assist you.