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For Sale By Owner - FSBO Multiple Listing Service

Recourse vs Non-Recourse Loans

The nature of the mortgage and real estate industries are such that there are lots and lots of regulations. On the financial side, a concept that is important to understand is the recourse vs non-recourse loan.  It is important to know what the difference is and what sort of mortgage you have.

When a home is foreclosed on by a lender, they eventually sell it and apply the proceeds to the original loan amount. Ah, but what if the proceeds don't cover the original loan amount?

In a recourse state, the lender can come after the borrower for the rest of the proceeds (the amount your mortgage exceeded the proceeds from the bank's sale). The usual proceedure is to get a "deficiency judgement" in court.  This affects your credit situation until after you get it paid off.  You're pretty much stuck with the need to pay the amount of the deficiency.

In a non-recourse state, the lender cannot go after the deficiency amount. If you are considering buying a home, make sure you know what type of state you are in.  Then, should you ever get into trouble with your loan, you'll have a much more realistic idea about the courses of action open to you.

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