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Recourse vs. Non-Recourse Loans

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Recourse loan means that the lender may collect the outstanding loan balance, even after seizing and selling the collateral. Non-recourse means the lender only gets up to the value of the collateral and the rest of the outstanding balance is wiped out.  The outstanding balance after applying sale proceeds from collateral, is called the deficiency. The lender has two years from date of foreclosure sale to file suit to collect any deficiency.

Some states don’t allow recourse loans at all and are therefore called non-recourse states. Texas is generally a recourse state. Commercial loans are all recourse loans, unless specifically negotiated as non-recourse. Purchase Money Loans have recourse but Home Equity loans and Reverse Mortgages have no recourse unless such loans were obtained by fraud. Purchase Money Loans are those loans used to actually buy the property. 

Many homeowners have two mortgages on their home – a first and a second mortgage. Lenders rarely pursue deficiencies on the first mortgage unless the deficiency is a sizable amount. Following foreclosure by the first mortgage lender, second mortgage lenders will sometimes pursue a deficiency judgment.

In a deficiency lawsuit, the borrower/ homeowner has the right to argue that the property was sold for less than the Fair Market Value. If able to prove this to the court, the deficiency amount will be adjusted by applying the appropriate Fair Market Value to the then existing loan balance (as at the time of the foreclosure sale.) If successful, this will reduce the overall deficiency amount. 

Texas Law – Insurance Claims on Home Damage

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Starting Sept. 1, House Bill 1774 becomes law in Texas. Under this new law, many insurance companies will pay property owners as little, as late as possible. Texans can expect only more delays and denials.

The new law reduces the amount of interest insurance companies will have to pay to homeowners if they take too long to pay for a claim. Currently, if a court finds that the company delayed payment, the company must pay the claim with 18 percent interest. The new law reduces the interest down to about 10 percent.

The law also reduces the amount of attorney fees that homeowners can recover if they don’t estimate with 80 percent accuracy the amount of damages done to their home when they file suit against the insurer.

This might make it harder for homeowners to demand timely payment for the damages done to their homes and will make it more difficult for them to find lawyers willing to sue insurance companies.

Be diligent in filing and following up on your claim. If too much time has passed or you believe the claim was underpaid or wrongfully denied, find a lawyer that is willing to go up against the insurance company.

Do This When Sued for a Debt

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Have you just been served with a collection lawsuit? Sucks! Make sure to protect yourself by doing the following things:

  1.  File an Answer to the lawsuit.
  2. Answer any Discovery Requests.
  3. Request Debt Validation from Plaintiff.
  4. Settle (if debt validation is satisfactory).
  5. Attend court hearing to dispute the debt (if no settlement).

File an Answer which includes defense of Statute of Limitations if you believe the debt is too old to be legally collected. Statute of Limitations is 4 years in Texas  – usually calculated from time of last payment. If Discovery was served with the lawsuit, you have 50 days to respond.

Request Debt Validation which will include asking for original loan documents, credit card application, proof of assignment (if Plaintiff is not the original creditor), proof of all charges and payments etc. The plaintiff is the party that is suing you whose name is on the court document.

Settle the Debt by making an offer of settlement to the plaintiff. Start low at about 20% of the total debt, so you have room to negotiate. Lumpsum cash offers are most attractive to creditors. However, ask for a repayment plan if you need one but the settlement amount might be higher. Negotiate that creditor will not file a judgment against you in the meantime OR that the judgment will be released upon final payment.

Attend Court Hearing by showing up at the scheduled date. The court clerk can tell you when the date is, if you call to the clerk. Prepare your side of the story, challenge the debt as needed, and hope for the best. Remember, you can still settle up until the day of the final hearing.

You can find help for the above at a local law library which might have forms for you to use. Some courts also have basic forms available. If uncomfortable handling any of the above by yourself, be sure to enlist the help of a lawyer immediately so you can protect your rights and your credit.