A “recourse” loan means that in the event of a default the lender has recourse against the borrower personally to make good on the balance owed, not just foreclose on the property. If a loan is recourse, the lender will generally retain the right to pursue collection of any deficiency after the short sale is completed. Refinanced loans, equity loans, and lines of credit are typically recourse loans.

A “non-recourse” loan means that in the event of a default, the lender can only foreclose on the property securing the loan. The lender cannot pursue the borrower personally for any deficiency balance. Loans used to initially purchase a residential property in California that are occupied by the purchaser are “non-recourse” loans.

The good news for those with property in California is that if a foreclosing lender uses a trustee’s sale to foreclose on a property (as opposed to a judicial foreclosure), they cannot seek any deficiency on that loan even if the loan is recourse. However, as to any other loans secured by the property, those lenders can pursue a deficiency after foreclosure if it is a recourse loan.