Legal Question in Real Estate Law in California

Yes. Pretty much all mortgages in California are written as recourse loans. There is a statute that prohibits the lender from enforcing the recourse rights IF the loan was made at the time of purchase AND 100% of the proceeds went into the purchase AND it is the borrower's principal residence. If any of those conditions do not apply, the lender has recourse. So if you refi the statute would not apply. It also would not apply to HELOCs that are drawn on after the purchase, or that are used in part for anything but the purchase, even if it is to pay down debt to qualify for the purchase, or for repairs or remodeling when the purchase is made. Whether the protection applies if the borrower subsequently rents the property out is less clear, but I wouldn't count on it. With that said, however, in the absence of fraud or some real estate investment loans, lenders 99.999% of the time are not willing to go to the trouble of enforcing their recourse rights. This is because in order to do so they must file and prosecute a traditional lawsuit and ask for foreclosure and deficiency as the remedy. Then, when the property is sold, it is subject to a one-year right of redemption by the borrower. So no-one is interested in buying it. The lender must then take it and sit on it for a year before anyone will buy it. It really is quite a miserable process. So they go the non-judicial foreclosure route, technically called a "trustee's sale under the power of sale clause of the deed of trust (i.e., mortgage)." By doing that, however, they have made an "election of remedies" and are subject to the "one form of action" rule. That means once they non-judicially foreclose to enforce the debt, they cannot then go into court and enforce it again for any unpaid balance. So realistically, almost no non-commercial real estate loans in California are really recourse loans.

A true refinancing loan loses the character of being a purchase-money loan, and hence is subject to a possible foreclosure in a court proceeding (a so-called judicial foreclosure) which in turn can result in a deficiency judgment if (as is usual in such cases) the court-directed sale does not produce enough cash, after costs, to repay the loan with interest and penalties.

This is not quite the same as a recourse loan, as that term is usually meant. Further, most lenders in most situations will not go to court; they simply use a trustee's sale, figuring the court action required to go after a deficiency is not worth it.

Finally, in some rare cases, it is possible to modify the terms of the original loan, with the same lender, without doing a refinancing and without destroying the "purchase money" aspect of the loan.