If you prowl the internet for information you can find jewels of information and lumps of mud. One of the notable lumps is the oft repeated claim that Idaho is a non-recourse state. Writers again and again repeat the claim that in Idaho, where a home has been foreclosed upon, the lender may not recover any money beyond that which is recovered at the foreclosure sale. THIS IS NOT TRUE. In making this claim writers confuse Idaho’s “single action rule” as it applies to mortgages with the procedure followed in a non judicial foreclosure pursuant to a note and deed of trust.
While most homes in Idaho are financed with a note and deed of trust true mortgages still exist and Idaho’s single action rule is important to them. That rule is provided by Idaho Code Section 6-101 that provides that “There can be but one action for the recovery of any debt, or the enforcement of any right secured by mortgage upon real estate . . .” This does not mean that a lender cannot recover a deficiency on a mortgage foreclosure. It simply means that the deficiency must be recovered in the same action (lawsuit) as the foreclosure. This can be done by asking the court to hold the case open until the foreclosure sale is finalized or by asking the court to re open the case. The lender will be limited though in the amount that he can seek. Idaho statute also provides that:
No court in the state of Idaho shall have jurisdiction to enter a deficiency judgment in any case involving a foreclosure of a mortgage on real property in any amount greater than the difference between the mortgage indebtedness, as determined by the decree, plus costs of foreclosure and sale, and the reasonable value of the mortgaged property, to be determined by the court in the decree upon the taking of evidence of such value.
Id. § 6-108
All this really means is that if mortgaged property is sold at a foreclosure sale by order of the court, for less that its “reasonable value” the lender must eat the difference.
None of this applies to the majority of foreclosures in Idaho because they do not involve mortgages but rather a note and deed of trust. The note is simply a contract wherein you agree to pay back the lender the amount borrowed at a specified interest rate. The deed of trust involves a third party called a trustee, usually a title insurance company or escrow company, who acts on behalf of the lender. When you sign a deed of trust, you in effect are giving a trustee title (ownership) of the property, but you hold the rights and privileges to use and live in or on the property. The trustee holds the original deed for the property until you repay the loan. When the loan is fully paid, the trustor requests the trustee to return the title by reconveyance. Under Idaho law a deed of trust can be enforced without judicial supervision. This is called a non-judicial foreclosure and is provided for by Idaho Code Section 45-1506. Unlike the foreclosure of a mortgage there is no single action rule pertaining to deeds of trust. Rather, Idaho Code Section 45-1512 provides that a lender, if he files within 3 months of the foreclosure sale may file an action with the court seeking a deficiency judgment. What is similar to the procedure for a mortgage is the court’s determination of the deficiency. Section 45-1512 provides that “The court may not render judgment for more than the amount by which the entire amount of indebtedness due at the time of sale exceeds the fair market value at that time, with interest from date of sale, but in no event may the judgment exceed the difference between the amount for which such property was sold and the entire amount of the indebtedness secured by the deed of trust.” I.C. § 45-1512
The bottom line is that if your home is subject either to a mortgage or a note and deed of trust you can be liable for the lender’s deficiency when the home is sold at a foreclosure sale. Where a mortgage is involved the lender must be careful to seek his deficiency in the same “action” and where a note and deed of trust is at issue the lender must respect the time limitations imposed by statute in order to recover his deficiency. In either case the amount of the deficiency that may be recovered is limited by the actual fair market value at the time of the sale. Bear in mind that this would only help the homeowner if the value of his property had increased. Where the fair market value has decreased the law allows a larger deficiency judgment. Where it has increased a lesser one.
Is Idaho a non recourse state?” NO. Whether your house was financed with a mortgage or a deed of trust the lender may seek to recover his deficiency if it is sold for less than the amount you borrowed. The single action rule for mortgages has simply been misinterpreted.
So, you are upside down on your house. The value since you purchased it has steadily dropped until it is now worth less than half of what you borrowed to buy it. Yes, the bank can seek to recover the difference between the fair market value when they sell the home and the amount you borrowed. Can you protect yourself from this? Again the answer is yes, but before you consider just packing up and walking away from your home it is important that you contact a competent attorney in order that you may understand all of the risks that you may face.