How Non-Recourse Loan Laws Vary from State to State

A non recourse loan is a loan that is protected by collateral. In the case of a mortgage, the non recourse loan is protected by the home, and in a non recourse loan state, the borrowers are not held liable for any amount greater than the value of the home at the time of repayment. The following states are non recourse loan states: Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington. Let's take a look at how the law varies from state to state.

Alaska

Both judicial and non-judicial foreclosures are available. Borrowers have a "right of redemption," meaning the homeowner can buy the home back from the person who bought it as a foreclosure, if a non-judicial foreclosure is used. If a judicial foreclosure is used, the borrower loses his right to redemption and may be subject to a lawsuit to recover the deficiency (the difference between the home's selling price and balance on the loan).

Arizona

Both judicial and non-judicial foreclosures are available. Deficiencies are not allowed if the home is on less than 2.5 acres of land. There is no right to redemption with a non-judicial foreclosure. With a judicial foreclose, there is a right to redemption unless the property has been abandoned. If no one has lived in the home for 6 consecutive months, the borrower may be liable for a deficiency. With a non-judicial foreclosure, the borrower may “cure” the mortgage default by making payments up until 5:00 PM on the day before the sale. If the condition of the home has diminished, a deficiency may be collected.

California

Both judicial and non-judicial foreclosures are available. California has a one action law, which means they must choose between foreclosure and deficiencies. It is not common for lenders to choose the judicial foreclosure option. There are two legal notices: the notice of default, and the notice of sale. A non-judicial foreclosure takes a minimum of 135 days, and the borrower can reinstate the mortgage up to five days prior to the sale.

Connecticut

Connecticut only offers a judicial foreclosure, using a “strict foreclosure” or “decree of sale.” With the “strict” option, a right to redemption is available, but the lender can sue for the debt owed. If the property is valued higher than the current balance of the loan, a deficiency lawsuit cannot be filed, but the lender keeps the extra money.

Florida

Florida only offers judicial foreclosure and only requires one notice to the borrower. There is a right to redemption until the clerk has formally filed a certificate of sale. A deficiency may be pursued by the lender for up to four years provided the debtor(s) are personally served. The debtor can request a trial by jury and the existence of deficiency along with amount of said deficiency is entirely up to a judge.

Idaho

Both judicial and non-judicial foreclosures are available. Borrowers can be sued for deficiency but it must be done in a separate lawsuit within 90 days after the sale. Right of redemption is available for up to 6 months for properties less than 20 acres and for 12 months after the sale for properties greater than 20 acres.

North Carolina

While North Carolina allows non recourse mortgages, the state does not require them. If a non-judicial foreclosure is used to recoup the loss, there is no right to redemption. Borrowers cannot be sued for the debt so long as the loan was used for real estate purchases.

North Dakota

North Dakota uses judicial foreclosures and begins the process with filing a complaint. A deficiency is allowed only if the original complaint states the lender is trying to get one, and it may take up to 150 days to process all the required documentation.

Texas

There is no right to redemption, but borrowers have 20 days to reinstate the mortgage. Lenders can seek deficiencies.

Utah

Judicial foreclosures are used. There is a right of redemption after the sale and this can be extended by the court. Lenders are permitted to seek deficiencies.

Washington

Both judicial and non-judicial foreclosures are available. No right of redemption is available for non-judicial foreclosure, and for judicial foreclosure, there is a year for redemption. Deficiencies are only allowed in judicial foreclosures.

The information presented in this article will not take the place of legal advice from a lawyer and is intended for informational purposes only.