My property in LA was foreclosed on two years ago however my second mortgage still appears on my credit report. Since my home was lost in the foreclosure process, why does this persist? I thought in california there was a no recourse law.
2 Answers from Attorneys
How many times are you going to ask the same question? The answer doesn't change. First off, the no recourse law only applies to purchase money mortgages for the borrower's primary residence. So if you took out the second at any time other then when you bought the property, or used one penny of it for anything but the purchase of the property, or did not occupy the property as your principal residence, the no-recourse law doesn't even apply.
Then, even if it does apply, all it means is they cannot sue you in court for the money. It doesn't mean that in a business sense you don't owe it, or that they cannot try to collect it by any legal means other than suing you for it.
Lastly, until it is written off, it remains on their books as an unpaid debt. Uncollectable does not mean not owed for accounting purposes. The bank has every right to carry it on its books as a non-performing loan, rather than write it off and expense it. When to write off bad loans has tax and banking regulation issues and the bank, as long as it complies with the banking regs, can choose the most advantageous time to write it off. Until then it properly is reported as an unpaid debt. You should also bear in mind that even once it is written off it will STILL show on your credit report; it just changes from owed debt to defaulted debt - which actually will make your credit score worse.
Bottom line: what they are doing is correct. You are wrong. It doesn't go away. Get used to it. The answer will not change.
No recourse is another name for anti-deficiency protection. All it means is that a lender cannot get a judgment for a deficiency, which is the difference between the outstanding debt, and what was realized at the foreclosure sale. That's all that is protected. The lender cannot sue you and get a personal money judgment.
It does not mean, however, that it does not get reported on your credit report. That will remain for up to seven years.
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