Recourse and Non-Recourse Loans
If you are having problems making loan payments and are curious what the tax consequences of a foreclosure,
then it will be very important to know whether your loan is a recourse loan or non-recourse. Your loan
documents will have information to identify which it is, but may not use those titles.
A non-recourse loan is a loan where the lender has no other recourse other than the loan collateral
should you default on the loan. A recourse loan is a loan where the lender has other recourse beyond
the collateral pledged for the loan. The lender can come after other assets in forcing you to repay the loan.
This is true whether the loan is a commercial loan for a business activity or a personal loan such as
on a car or a mortgage on your home.
In California by statute a purchase money loan for your personal residence is always non-recourse.
This is a loan used for the initial purchase of your personal residence. However, any refinance including
a home equity line-of-credit (HELOC) can be either recourse or non-recourse, but many are recourse.
If you are looking at a potential foreclosure, it is critical that you identify which type of loan you
have because the tax consequences are considerably different.
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