Here's the deal. I have an investor that bought a property with an 80/20 loan both held by the same servicer. Well, the servicer sold the second mortgage to another servicer. So now, both loans on the property are held by two different servicers. Long story short, the first foreclosed on the property. My investor continues to recieve statements for payment from the second servicer.

I hear conflicting information....like, since the property foreclosed, the second mortgage is wiped out OR the investor is still responsible for paying that mortgage and if he fails to do so, the lender can garnish his wages or sue him for payment.

So, my questions are:
1. Where in the loan documents does it state if the mortgage is a recourse or nonrecourse loan?
2. Being a recourse or nonrecourse, does that have any effect on the way the 2nd mortgage servicer can come after him?
3. Is he still responsible for paying the 2nd?
4. How will this situation effect his future purchase of real estate (personally and for investment)?

One last bit of information. The foreclosure took place in summer 2005. My investor is afraid to contact the 2nd because they may demand payment and he can not afford to make payment. At the same time, his credit score is still dropping due to the negative hit each month from the second.

Please let me know your thoughts.

It depends on the state laws regarding collecting a deficiency balance after foreclosure. If the state allows this then this answer would be correct:


If they do not then this answer would be correct:




1) State Laws Dictate whether a lender can collect a deficiency balance on a foreclosed home.
2) If Recourse is allowed in the state then yes they can collect and non-recourse means they cannot. (there are requirements)
3) If State Law allows it yes. If not no.
4) Very adversely. It would be difficult for him to obtain real estate financing if he still owes money on a previously foreclosed home.

The mortgage and note would tell you your answer on recourse. But, ultimately the state controls whether it is allowable. Full Recourse, Partial Recourse, or Without Recourse is what verbiage you would be looking for in the 2 documents. These documents are in the closing paperwork and recorded at the courthouse.

Just for the sake of knowledge he may be able to file for bankruptcy protection and wipe out that debt. It is officially unsecured since the collateral has been liquidated.

Also most states have anti-deficiency laws. They usually only protect the homeowner if it was an owner occupied property. Additionally, only mortgages obtained to purchase the property. So with that being said if this was an investment property he probably owes.

Thanks Greg! I will look up GA foreclosure laws and also share this information with him.

I have planned to move in Tennessee as my new project is starting over there. They are offering me a promotion but my biggest worry about the rented place; I heard that mortgage rates in Tennessee are very high. Can you guys help me to find a simple, clean, safe mortgage in Tennessee in not much expensive but I would prefer area near about park or lake. Thanks in advance.