Refinances and Recourse

| Comments (1) | Misc
One of the weird tropes in the mortgage crunch is reports of people walking away from their houses when the value of their loan exceeds the value of the house. Obviously, this works better if your mortgage is non-recourse, meaning that the lender can't go after your personal assets once they foreclose. If you don't have any other real assets anyway, this doesn't make much difference, but if you're someone with substantial other assets who just made a bad investment, then this is pretty convenient (though it doesn't exactly do wonders for your credit score). As far as I can make out, in California, first mortgages are generally non-recourse, but refis are often recourse (see the FTB's discussion here). That could be a nasty surprise...

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The FTB article (obNonCalif: FTB collects the Calif. state income tax) mentions an angle that is possibly worse than having the bank go after your car: having to pay Federal and state income tax on "debt cancellation income."

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