A Loan is a Loan

• Some states distinguish between different types of loans in classifying which mortgages are recourse and which are non-recourse. In California , for instance, all loans taken out for the purchase of the property are treated as non-recourse. All refinanced loans and other loans taken out after the purchase are recourse. In North Dakota, loans for one-, two- three- and four-family residential properties on less than 40 acres are treated as non-recourse and all others are recourse. In Florida, however, every loan is treated the same way. Purchase loans, refinanced loans and home equity loans are all recourse.
  
  

Understanding Recourse Loans

• The distinguishing feature between recourse and non-recourse loans is how the classification affects debt collection. On a non-recourse loan, the creditor can foreclose on the property but cannot go after the borrower for repayment of any debt. On a recourse loan, the creditor can foreclose first and then, if the sales price is less than the outstanding debt, it can go after the borrower to recover the balance of the money owed.
  
  

Deficiency Judgments

• In most states, the lender goes after the borrower for payment on any debt remaining after foreclosure through a separate lawsuit, concluding in what is called a deficiency judgment against the borrower. In Florida, lenders can combine the foreclosure lawsuit with the deficiency lawsuit or they can file a separate lawsuit up to five years after foreclosure.
  
  

Collecting the Debt

• Once a lender has a deficiency judgment against the borrower in Florida, it can garnish bank accounts and put liens on another property, forcing its sale. In some cases it can also garnish wages, although there are restrictions against garnishing wages of anyone supporting a child. A deficiency judgment is valid for 10 years in Florida and can be renewed for another 10. Banks sometimes bundle such judgments and sell them to firms specializing in collection.