If you’re a duplex home owner facing a short sale or foreclosure, one of the most important items to consider in your decision-making process is whether your state is a recourse or non-recourse loan state.
A recourse loan is one in which the bank can obtain a deficiency judgement for any amount they can’t recuperate through a short sale or foreclosure.
For example, if you sell your duplex and are $25,000 shy of what you owe the lender, they can pursue you for the difference. Of course, if you lose the property to foreclosure, they can come after you for the total loan balance.
Sadly, most states are recourse loan states.
However, Minnesota, California, Mississippi, Montana, North Dakota and West Virgina are what’s known as non-recourse loan states. There, the property is the only collateral the bank can come after. Once it’s sold or foreclosed upon, they can’t pursue further judgements.
Of course, for duplex owners, that may not mitigate tax liabilities and it’s important that you consult with your accountant before making any decisions.