A recourse state is one that allows mortgagers to pursue additional legal action in the event of a mortgage default situation. In addition to the normal foreclosure process associated with a mortgage default, the mortgagor may be able to pursue additional action in order to recover damages from the plaintiff.
In contrast, a non-recourse state prohibits mortgagors from suing the person on top of the foreclosure process. Public policy indicates that many feel that the foreclosure process is already severe for the debtor, and allowing additional damages may sometimes create unnecessary hardships.
What Is an Anti-Deficiency Statute?
In non-recourse states, the real estate laws will include an anti-deficiency statute. These types of anti-deficiency laws prohibit the lender from filing for those additional damages mentioned above. Those types of lawsuits are called deficiency judgments; hence, the statutes are called "anti-deficiency" statutes. Each non-recourse state has some form of an anti-deficiency law.
However, anti deficiency statutes may vary from state to state in terms of their scope. In some states, the anti-deficiency law will prevent the lender from collecting any money at all from the borrower. Instead, they are forced to accept whatever amount they receive from a foreclosure sale, even if they end up with a loss of profit. This effectively allows the borrower to "walk away" from the mortgage agreement without paying anything on the way out.
In comparison, some anti-deficiency statues do allow the lender to collect money from the homeowner, in limited amounts. For instance, the mortgage lender may be allowed to collect the remaining difference between the outstanding debt and the fair market appraisal value of the home.
What Is the One-Action Rule?
Some states will not permit lenders to collect deficiency judgments unless the lender follows a certain legal process. Many states which institute a One-Action rule require that the lender follow judicial foreclosure in order for the lender to collect a deficiency judgment.
Although states that enact anti-deficiency statues typically enact a One-Action rule as well, some states enact a One-Action rule as their only anti-deficiency statute.
Which States Are Considered Non-Recourse States?
There are currently 12 non-recourse states: Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington. In non-recourse states, the lender may foreclose, but as mentioned, they must accept whatever they receive from the foreclosure sale, which usually spells out a loss.
The other remaining states are called recourse states and allow some form of recourse, although the particular details and requirements for the deficiency judgments will be different in each state. Many recourse states still place limitations on how a lender can collect a deficiency judgment and how much the lender can collect from such a judgment.
Do I Need a Lawyer for Help with Recourse State Laws or Other Issues?
Mortgage agreements and default situations can often present some very complicated legal issues for both sides of the agreement. You may wish to hire a lawyer for help with the recourse and deficiency laws in your area. These will differ from state to state, but a qualified real estate lawyer in your area will be able to provide you with the legal advice needed for your claim. Also, your attorney can be on hand to represent you during the actual court proceedings.