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- California Foreclosure Laws on HELOC Loans
As defined in California Civil Code 580(a) through 580(d), California foreclosure laws vary depending on a number of factors: whether the trust deed secured by real estate is a recourse or non-recourse loan; whether it is for a primary or secondary residence; and whether the lender proceeds with a judicial or nonjudicial foreclosure. Furthermore, a home equity line of credit, also known as a HELOC loan, can be considered either a recourse or non-recourse loan, depending on the purpose and terms of the contract.
A HELOC loan used to purchase a car is a recourse loan. A recourse loan is a loan used for purposes other than purchasing real estate. Refinance loans in which credit card debt and automobile loans are consolidated with a mortgage are considered recourse loans. Under California foreclosure laws, a recourse loan may be subject to a deficiency judgment. A deficiency judgment is a court order to pay the balance due on a loan through a monthly payment plan, a wage garnishment or a lien against another property. A HELOC loan used to consolidate debt or to make household improvements or automobile purchases is considered a recourse loan and is subject to debt collections after a foreclosure.
A HELOC loan used to purchase a house is a non-recourse loan. A non-recourse loan is a loan used to purchase real estate. Under California foreclosure laws, non-recourse loans for owner occupied one-unit to four-unit principal residences are protected by anti-deficiency laws. In a 100 percent financed loan, a lender often structures the property purchase through a first loan of 80 percent and a second loan of 20 percent. If the 20 percent loan is a line of credit used exclusively to purchase an owner-occupied principal residence of one to four units, then the HELOC loan is exempt from debt collections after a foreclosure.
Judicial foreclosure is settled in court. A loan goes into default when a borrower no longer makes payments. A power of sale clause in a loan contract states the lender has the right to sell the property to recover the balance due on the loan if the homeowner does not make payments. If a power of sale clause exists in the terms and conditions of a HELOC loan contract, the lender may foreclose on the property through a trustee's sale in which a property is auctioned to the highest bidder.
If there is no power of sale clause in the terms and conditions of a HELOC loan contract, the lender can file a lawsuit in Superior Court to force a public sale by the sheriff. If the HELOC was a recourse loan, a deficiency judgment will be filed against the borrower for the difference between the fair market value of the property and the amount owed on the loan. If the borrower refuses to pay the deficiency judgment, his wages can be garnished or a levy can be filed against another property he owns.
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