Discussion:Recourse vs nonrecourse debt

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Discussion Forum Index --> Advanced Tax Questions --> Recourse vs nonrecourse debt


Discussion Forum Index --> Tax Questions --> Recourse vs nonrecourse debt

McKinney & Company (talk|edits) said:

28 July 2008

A California taxpayer purchased a principal residence with no money down (this is nonrecourse debt), then the value of the principal residence went up and taxpayer took out a home equity loan (this is recourse debt) to purchase a personal vehicle for $50,000.

Now the value of the personal residence is less than the purchase price and the taxpayer will lose the house. So usually the amount forgiven would be taxed as follows: The amount of the home equity forgiven would be ordinary income and the amount of principal indebtedness would be capital gains subject to the Section 121 and/or 125 exclusions.

The question that has come up is in California if the lender chooses to foreclose using a trustee sale, then does the lender waive the right to go after the borrower for the deficiency despite the fact that the home equity portion of the loan was a recourse debt? If that happens, can the taxpayer now treat the home equity portion of the loan as a nonrecourse loan and report the forgiveness from this portion as capital gains (along with the principal indebtedness)?

Riley2 (talk|edits) said:

29 July 2008
If the lender on the home equity loan is foolhardy enough to use a nonjudicial foreclosure to foreclose on the property, then the lender on the home equity loan is precluded from suing for a deficiency judgment. This does not convert the home equity loan to a nonrecourse debt. However, if the lender on the first trust deed forecloses (more likely), the lender on the home equity loan can sue for a judgment on the $50,000.

Riley2 (talk|edits) said:

29 July 2008
Incidentally, a foreclosure on the first trust deed will remove the $50,000 lien from the property, but your client would still be liable for the $50,000.

McKinney & Company (talk|edits) said:

29 July 2008
Thanks Riley2 - Appreciate your input.

EZTAX (talk|edits) said:

19 March 2009
I am still confused by this. Two CPA's have told me that in California a non-judicial foreclosure turns recourse debt into nonrecourse debt. A laywer told me that a short sale has the same effect. Can anyone else shed some light?

Riley2 (talk|edits) said:

19 March 2009
The Service’s position is that the mere possibility that the lender will opt for a nonjudicial foreclosure, thereby limiting the lender’s remedies under CCP 580d, does not convert a full recourse note into a nonrecourse debt for tax purposes. See GCM 35627.

EZTAX (talk|edits) said:

19 March 2009
Thanks again Riley. This is crazy. It is hard enough to figure out how to properly prepare a tax return, especially with foreclosures and short sales. Now we need to get a lawyer involved just to figure out if a loan should be treated as recourse or nonrecourse. Some of the time it works out better for the client if it is recourse, sometimes it works out better if nonrecourse. I find it difficult to believe that that much more taxes are collected due to this position. If the IRS would just allow all nonjudicial foreclosures to be treated as non-recourse, more people would be able to properly prepare returns with confidence.

I guess I am just blowing of steam. I have tried really hard to do this correctly but I am having a real hard time feeling comfortable with my understanding of this. I wish the service would occasionally make the sacrifice of some dollars for the sake of clarity and greater simplicity.

In discussing this with other professionals, and from our discussions here, it is obvious that many others are confused by this.

David1980 (talk|edits) said:

19 March 2009
As someone who has used credit cards in the past, I think debt cancellation should always be tax exempt. Why shouldn't I get a free $50,000 vehicle tax-free?

:)

DesertRat (talk|edits) said:

20 August 2010
Riley2

I have been searching (including legalbits) and have been unable to find GCM 35627. Any chance you could link to it? Thanks

R2 (talk|edits) said:

23 August 2010
I had this GCM in one of my many online subscriptions, but I can't remember which one.

GCM 35627

LH2004 (talk|edits) said:

August 23, 2010
General Counsel Memoranda 35627

SECTION 0752 TREATMENT OF CERTAIN LIABILITIES 0752.00-00 -- LIABILITY TO WHICH PROPERTY IS SUBJECT 0752.03-00

GCM 35627; 1974 GCM LEXIS 437

January 16, 1974

[*1] 


REFERENCE: CC:I-492-73
Br3:LOBSullivan

UI LIST:

UI No. 0752.00-00
UI No. 0752.03-00

TEXT:

***

DONALD C. ALEXANDER

Commissioner

Attention: Lester Stein, Special Assistant

This responds to your memorandum (CC:LS) of August 14, 1973, in which you requested us to review the allowance of a refund in a case that was referred to the Joint Committee on Internal Revenue Taxation in accordance with the provisions of Int. Rev. Code of 1954, § 6405 [hereinafter cited as Code].

ISSUES

(1) Whether any part of a *** loan, which was borrowed in California by a Texas limited partnership, secured by a deed of trust on partnership *** in Texas, and partially guaranteed by the general partner and the limited partner acting in their individual capacities, is a nonrecourse liability which the limited partner may be considered to share pursuant to Treas. Reg. § 1.752-1(e).

(2) Whether a limited partner who in his individual capacity is co-maker on a note with his limited partnership has assumed a partnership liability within the meaning of Code § 752(a).

CONCLUSION

(1) We agree with the staff of the Joint Committee that the $2,500,000.00 loan to the *** limited partnership was not a nonrecourse liability that the limited partner [*2] would be considered to share under Treas. Reg. § 1.752-1(e). Neither the debt instruments nor the laws of California, Nevada of Texas, each of which had some contact with the loan transaction, provide a basis for holding that the general partner is not personally liable for the entire indebtedness of the limited partnership.

(2) A limited partner who in his individual capacity signs a partnership note as co-maker has not assumed a partnership liability within the meaning of Code § 752(a). The term "assumption" as used in Code § 752(a) contemplates an increase in a partner's individual liabilities and a corresponding decrease in the liabilities of the partnership in the sense that the partner in his individual capacity becomes obligated to relieve the partnership of any liability on the obligation.

FACTS

Before his death in *** was a *** In *** decided to develop and operate a chain of hotels to be known as the ***. Their plan was to use several limited partnerships for the purpose of acquiring real property and to use Subchapter S corporations to operate each hotel to be constructed or acquired.

Pursuant to this plan *** formed ***limited partnerships in each of which *** became [*3] general partner and *** became limited partner. Although only nominal cash contributions were made to the partnerships, each was able to secure adequate financing because of ***

Included within the group of limited partnerships was ***, a Texas limited partnership in which *** made no direct cash investment but in which he had a 50 percent interest. *** acquired *** acres of land in *** and constructed *** hotel on the property with the aid of *** construction loan obtained from the *** [hereinafter Pension Fund Trustees]. The installment note for the loan was secured by a deed of trust and a chattel mortgage on the Texas property and was signed in California by *** in his *** capacity as general partner of ***. n1

On the same day that *** note was signed, *** each in their individual capacities signed an agreement entitled "Partial Guarantee" under which they unconditionally guaranteed to the Pension Fund Trustees that *** would pay that portion of the loan that exceeded *** The guarantee stated that the *** loan was conditioned upon the signing of the guarantee.

*** limited partnerships formed by *** were *** n2 *** made nominal cash investments in both of these partnerships [*4] and, in his individual capacity, was co-maker with *** on a note for *** and co-maker with *** on notes for *** sustained operating losses that were claimed by *** and by the *** on their tax returns to the extent of *** and *** share of the losses of the *** were claimed to be and *** and for the *** they were *** and ***. n2

Claims for refund of *** taxes were made in favor of *** based to a large extent on carrybacks of net operating losses reported for the years *** through *** These losses were in part the result of partnership loss deductions attributable to *** The revenue agent disallowed these deductions on the grounds that *** had no partnership investment or basis under which these deductions could be claimed.

The taxpayers n3 have protested the disallowance of the deductions stemming from the *** arguing that there was no personal liability as to the first *** of that partnership's debt and thus that part of the liability was includable, in part, in *** partnership basis under Treas. Reg. § 1.752-1(e). This increase in basis entitled him to share in the losses sustained by the partnership. As for the losses from *** taxpayers' position is that by co-signing the notes [*5] *** became personally liable on the loans to these partnerships and thus was entitled to an increase in his partnership bases and a resulting share in the losses claimed. The appellate conferee agrees with the taxpayers that *** share of the unguaranteed portion of the loan to *** was includable in the basis of his partnership interest and has also concluded that *** status as co-maker of the notes signed by *** entitled him to a step-up in basis. The staff of the Joint Committee on Internal Revenue Taxation, has criticized the allowance of these loss deductions.

ANALYSIS

Under Subchapter K, a partner's distributive share of partnership losses is limited "to the extent of the adjusted basis of such partner's interest in the partnership at the end of the partnership year in which such loss occurred." Code § 704(d). The adjusted basis of a partner's interest in a partnership includes the amount of property, including money, that he contributes to the partnership plus his share of partnership liabilities determined under Code § 752. Since *** made nominal contributions in cash or property to the *** limited partnerships, he had to have a share of the liabilities of these partnerships [*6] in order to share in the losses they realized.

We agree with the staff of the Joint Committee that *** did not have a share of the *** liability representing the loan obtained by *** from the Pension Fund Trustees. In our view, the taxpayers' argument that the first *** of this loan was a nonrecourse liability that Treas. Reg. § 1.752-1(e) entitled *** the limited partner, to share cannot be supported. Treas. Reg. § 1.752-1(e) states in part as follows:

In the case of a limited partnership, a limited partner's share of partnership liabilities shall not exceed the difference between his actual contribution credited to him by the partnership and the total contribution which he is obligated to make under the limited partnership agreement. However, where none of the partners have any personal liability with respect to a partnership liability (as in the case of a mortgage on real estate acquired by the partnership without the assumption by the partnership or any of the partners of any liability on the mortgage), then all partners including limited partners, shall be considered as sharing such liability under section 752(c) in the same proportion as they share the profits.

An examination [*7] of the debt instruments and the relevant state law reveals no basis for concluding that the debt, even though secured by a mortgage on property, was other than a liability of the partnership for which the general partner was personally liable.

Turning initially to the installment note signed by *** we find a simple promise on its part to repay the entire *** with interest:

FOR VALUE RECIEVED, the undersigned, *** a Texas limited partnership, and *** a Texas corporation, hereby jointly and severally promise to pay to the order of...

***and their respective successors in office, and assigns, the principal sum of

*** and interest calculated on monthly balances of principal remaining from time to time unpaid at the rate of six and one-half percent (6-1/2) per annum....

While page 2 of the note states that it is secured by a deed of trust and a chattel mortgage on partnership property in Texas, there is no indication that upon default the lenders may look only to this property for recovery of the amount still due on the note. In fact, on page 3 the parties agree that "at the election of the holder or holders thereof,... all sums remaining hereunder (both principal and interest) shall [*8] become at once due and payable... in case of default in the payment of principal or interest when due in accordance with the terms thereof...." (Emphasis added.) Further on it is stated: "If this Note or any installment hereof or any interest hereon is not paid when due and this Note is placed in the hands of an attorney or attorneys for collection or foreclosure of the Deed or Trust or Chattel Mortgage securing payment thereof...". (Emphasis added) As Mr. Bates points out in his April 4, 1973 memorandum for the Joint Committee, the general rule is that a mortgagor (in this case *** is personally liable if the mortgage is accompanied by a note, bond, or other evidence of debt. 59 C.J.S. Morgages, § 341 (1949). Thus, looking no further than the note, the liability of the partnership and thus the personal liability of the general partner for the entire *** is beyond question.

The taxpayers argue, in effect, that the obligation incurred by *** by signing the installment note has to be examined in light of the "Partial Guarantee" entered into by *** in their individual capacities. While admittedly the general rule that a mortgagor is personally liable for the debt secured by a mortgage [*9] is subject to exception if there is an agreement to the contrary between the parties, we find nothing in this guarantee that limits in any way the liability of *** for the ***

By signing the "Partial Guarantee," *** promise in their individual capacities to be liable for the amount by which the loan to *** exceeds *** The guarantors "waive all rights which they have to require the Lender to institute suit or other action against the original maker of said note or against the security securing said note." The implication of this provision is that if there is a default the lender initially has a choice of (1) suing the partnership on the note, (2) foreclosing on the mortgage, or (3) suing on the guarantee. The guarantee does indicate that *** in his capacity as guarantor is only liable for the second *** of the debt. However, one cannot imply from this that *** is not personally liable for the entire note in his capacity as general partner of *** See Rev. Rul. 69-223, 1969-1 C.B. 184 and G.C.M. 33801, *** I-2494 (April 18, 1968), which held that a provision in the partnership agreement whereby the limited partner agreed to indemnify the general partner should he be called upon [*10] to pay more than his pro rata share of liabilities was an agreement between the general and limited partners in their individual capacities and was not equivalent to an obligation of the limited partner to contribute additional capital to the partnership as a whole within the meaning of Treas. Reg. § 1.752-1(e).

Our conclusion that no state statute rendered the *** loan from the Pension Fund a non-recourse liability involved a choice of law problem. What state law applies in determining liability on an installment note signed in California by a Texas limited partnership, secured by a mortgage on property in Texas, and accompanied by a partial guarantee entered into by an individual resident of Nevada *** and an individual resident of California ***?

An early treatise states that whether the holder of a note after foreclosure can collect a deficiency depends either on the law of the state of the situs of the land or the place of contracting. 2 J. Beale, The Conflict of Laws, § 227.3 and § 346.3 (1935). More recently, the Restatement on the Conflict of Laws provides that while the courts of the situs would apply their own local law to determine questions involving the foreclosure [*11] which affect interests in the land, issues which do not affect any interest in the land, although they do relate to the foreclosure, are determined by the law which governs the debt for which the mortgage was given. A example of such an issue is the mortgagee's right to hold the mortgagor liable for any deficiency remaining after foreclosure or to bring suit upon the underlying debt without having first proceeded against the mortgaged land. Restatement (Second) of Conflict of Laws, § 229 (1969).

It appears that, in the absence of an effective choice of law by the parties, the rights and duties of parties to a debt obligation are determined by the local law of the state which has the most significant relationship to the transaction and the parties. Such contacts include (1) the place of contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the location of the subject matter of the contract and (5) the domicile, residence, nationality, place of incorporation and place of business of the parties. Restatement (Second) of Conflict of Laws, § 188 (1969). Thus, in Younker v. Manor, 63 Cal. Rptr. 197, 255 Cal. App.2d 431 (1967) the court counted [*12] the significant contacts various states had with the sale of land financed by a loan and decided to apply California law despite the fact the note was made payable in Nevada and the secured land was also in Nevada. On the other hand, in Bullington v. Mize, 25 Utah 2d 173, 487 P.2d 500 (1970), a review of "significant contacts" in an action brought to recover an unpaid balance on the lender's lien note after foreclosure of a trust deed covering Texas property resulted in the application of Texas law. For more on the conflicts of laws question concerning deficiency judgments see 136 A.L.R. 1054 (1942), and Currie and Lieberman, Purchase - Money Mortgages and State Lines: A Study in Conflict - of - Laws Method, 1960 Duke Law Review 1.

We believe it is impossible to count the various contacts California, Nevada and Texas each had with the loan by the Pension Fund Trustees of *** to *** and end up with the one state whose law would always be applied no matter what forum was chosen for a suit on the obligation. All three states have significant contacts with the transaction. For this reason, the local law of California, Texas and Nevada must each be examined in order to adequately [*13] answer the question whether any partner is personally liable on the partnership's obligation within the meaning of Treas. Reg. § 1.752-1(e).

Only California of these three states has an anti-deficiency statute and under certain circumstances would have limited the liability of *** and its general partner for *** Loan. Cal. Civ. Pro. § 580(d) (West 1955) provides in relevant part, as follows:

No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property hereafter executed in any case in which he real property has been sold by the mortgagee or trustee under power of sale contained in such mortgage or deed of trust.

This section of the California Code prevented deficiency judgments in Union Bank v. Gradsky, 71 Cal. Rptr. 64, 26 Cal. App.2d 40 (1968) and in Union Bank v. Dorn, 254 Cal. App.2d 157, 61 Cal. Rptr. 893, (1967) both of which involved transactions very similar to the one at issue in the present case. In Union Bank v. Gradsky and Union Bank v. Dorn, a creditor was attempting to recover the unpaid balance of a secured construction loan after his nonjudicial sale of the secured property. The California [*14] Court of Appeals held in each instance that section 580(d) protected both the principal debtor and the guarantors of the loan and by electing the remedy of nonjudicial sale of the security the creditor was estopped from recovering the unpaid balance on the note. Using this same rationale in our case, had the Pension Fund Trustees exercised the power of sale granted in the installment note, then under California law, they would not be permitted to recover from *** or its general partner the amount of any deficiency remaining on the note. n4 In these circumstances there would be no personal liability with regard to the $2,500,000.00 indebtedness.

Even under California law, however, there is only a possibility that there will be no personal liability under the installment note for there is nothing in California's anti-deficiency statutes that initially bars either a suit on the underlying debt or a deficiency judgment after a judicial foreclosure. Thus, on the occurrence of a default by *** on payments on the installment note, the Pension Fund Trustees could (1) sue the partnership for the remainder due on the note, (2) bring an action for judicial foreclosure or (3) exercise the [*15] power of sale contained in the installment note. Only in the last instance would the recovery on the amount owed be limited to the secured property. Thus, even if we were convinced that California law would always be applied, the potential nonrecourse character of the note does not mean that the *** obligation was in fact a partnership liability with respect to which none of the partners had any personal liability within the meaning of Treas. Reg. § 1.752-1(e). n5 For more on the California anti-deficiency statute, see Hetland, Deficiency Judgment Limitations in California--A New Judicial Approach, 51 Cal. L. Rev. 1 (1963), and Rintala, California's Anti-Deficiency Legislation and Suretyship Law: The Transversion of Protective Statutory Schemes, 17 U.C.L.A. L. Rev. 245 (1969).

We found no statutory or case law in Taxas or Nevada similar to California's anti-deficiency legislation. For example, in Texas, the exercise of the power of sale granted in a deed of trust is equivalent to a judicial sale and does not bar an action to recover the balance due on the note. See Tex. Rev. Civ. Stat. Ann art. 3810 (1966). See also Tex. Rules Civ Proc. Ann. Rul. 309 (1966); Whalen v. Etheridge, 428 S.W.2d 824 (Tex. Civ. App. 1968) [*16] and Koehler v. Pioneer Insurance Company, 425 S.W.2d 889 (Tex. Civ. App. 1968). Likewise, under the law in Nevada at the time of the transaction between *** and the Pension Fund Trustees there was only one action for the recovery of any debt or the enforcement of any right secured by a mortgage upon real estate or personal property.Nev. Rev. Stat. § 40.430 (1963) provided that if the sale of the encumbered property resulted in a deficiency still due to the lander "judgment shall then be docketed for such balance against the defendant or defendants personally liable for the debts, and shall from the time of such docketing, be a lien upon real estate of the judgment debtor, and an execution may thereupon be issued by the clerk of the court, in like manner and form as upon other judgments, to collect such balance or deficiency from the property of the judgment debtor." n6 See Younker v. Manor, supra, in which one of the issues was the debtor's mistaken belief that the law of Nevada with respect to deficiency judgments was the same as that of California.

To summarize, our examination of the laws of California, Nevada and Texas, the three states whose laws as to deficiency judgment [*17] could be made applicable to the obligation of *** reveals that there was only a possibility under California law that *** in his capacity as general partner could not be held personally liable for the entire *** debt. This possibility is not significant *** enough to satisfy the requirement of Treas. Reg. § 1.752-1(e) that before a limited partner be considered to share a partnership liability none of the partners be personally liable on the obligation.

As for the second issue, *** status as *** co-maker of the notes signed by *** limited partnerships did not affect the basis of his interests in *** partnerships. There are only three circumstances under which a limited partner is characterized by Code § 752 as having made a contribution of money to the partnership entitling him to increase the basis of his partnership interest pursuant to Code § 722. First, an increase in a limited partner's share of partnership liabilities will be considered a contribution of money to the partnership by such limited partner but only to the extent that the total contribution he is obligated to make under the limited partnership agreement exceeds the actual contribution credited to him by the [*18] partnership. Code § 752(a) and Treas. Reg. § 1.752-1(e). Secondly, as discussed in connection with the first issue in this case, if none of the partners in a limited partnership have personal liability with regard to a partnership liability then Treas. Reg. § 1.752-1(e) provides that all partners, including limited partners, will be considered as sharing such liability under Code § 752(c) and each partner's share of such liability will, under Code § be considered a contribution of money to the partnership. Third and finally, Code § 752(a), without distinguishing between general partners and limited partners, characterizes any increase in a partner's individual liabilities by reason of the assumption by such partner of partnership liabilities as a contribution of money by such partner to the partnership. Since there is no evidence that *** was obligated to make additional capital contributions to either the *** nor was there evidence that the loans to these two limited partnerships were non-recourse, we see no basis for concluding under either the first or the second Code § 752 characterization that *** should be considered to have made a contribution of money to the limited [*19] partnerships. As for the third Code § 752 theory, our conclusion that *** did not assume partnership liabilities within the meaning of Code § 752(a) involves a more detailed rationale.

As used in Code § 752(a), "assumption" contemplates an increase in a partner's individual liability and a corresponding decrease in the liabilities of the partnership in the sense that the partner in his individual capacity becomes obligated to relieve the partnership of any liability on the obligation. This is evidenced by the example in Treas. Reg. § 1.752-1(a)(2) which provides as follows:

... equal partnership AB owns real property with an adjusted basis to the partnership of $1,000, a fair market value of $800 and which is subject to a mortgage of $400 which the partnership has not assumed. The mortgage is considered as a liability of the partnership under section 752(c). Since A and B each share one-half thereof, under section 752(a) the liability of each has been increased $200. Under section 722 such $200 increase is reflected in the basis of each partner for his interest. The real property is distributed by the partnership to A. Under the provisions of section 733(2), there is a net [*20] decrease of $800 in A's basis for his partnership interest. This amount is computed as follows: The basis of A's partnership interest is decreased in the distribution by $1,000 (the partnership basis for the distributed property) and further decreased under section 752(b) by $200 (the decrease in A's share of partnership liabilities) and increased under section 752(a) by $400 (the increase in A's individual liability by reason of section 752(c)). Conversely, the basis of B's partnership interest is decreased by $200 since the distribution of the real property to A resulted in a decrease in B's share of the partnership liability under section 752(b).

Although the example involves Code § 752(c) which treats a mortgage to which property is subject as a liability of the owner of that property, it is nonetheless evidence that the transfer of the mortgaged property from the partnership to the partner carries with it the obligation to discharge the liability thereon.

Thus, in order to hold that a partner has assumed a partnership liability within the meaning of Code § 752(a) there must be some evidence that the partner in his individual capacity has taken over the burden of discharging [*21] the obligation for the partnership. Code § 752(a)'s characterization of an assumption of a partnership liability as a contribution of money to the partnership makes sense only if the partner relieves the partnership of the burden of repaying the obligation.

We find no evidence that *** assumed the obligations owed by the *** Although *** signed the partnership note, indications are that he was merely acting as an accommodation maker for the partnership which used the funds and which was expected to repay them. The information submitted indicates that the proceeds from the notes were deposited to a limited partnership bank account and were recorded as a liability to each lender on the partnership books. In the 1965 income tax returns of these two partnerships the *** liability and the *** liability are reported as liabilities on the partnership's balance sheet. Also, the interest payments on these loans are reflected in these same partnership tax returns as expenses of the partnerships that offset the rental income from partnership property. It is clear then that the partnerships, and not *** were repaying the loans. In addition, the partnership agreements specifically provided [*22] that the limited partner shall not be personally liable for any debts of the partnership or for any losses thereof beyond his contribution to the capital of the partnership. Under these circumstances, *** did not assume partnership liabilities within the meaning of Code § 752(a).

Accordingly, we do not recommend that any refunds be made to the taxpayers based on losses sustained by the *** limited partnerships. *** did not share as a partner in the liabilities of these partnerships and thus the bases of his partnership interests were insufficient to allow him a deductible share of partnership losses.

We are returning the administrative files with this memorandum, ***.

MEADE WHITAKER

Chief Counsel

Internal Revenue Service

FOOTNOTES:

n1 The note was also signed by *** in his capacity as president of ***, a Texas, corporation. As explained in a letter from taxpayers' counsel dated *** the lender required *** to be a maker of the note because the corporation was going to be lessee of the property.

n2 *** was also a general partner in ***

n3 The "taxpayers" are *** who ***

n4 We see from a copy of the complaint filed by the Pension Fund Trustees against the guarantors that the Trustees did exercise the power of sale under the mortgage and from the sale of the property recovered of the *** debt. According to the complaint, the deficiency of *** "has not been paid" and thus the amount was sought on the partial guarantee from the ***. Evidently, the Trustees, who under our analysis were entitled to a judgment against *** for the deficiencies, decided that a suit on the guarantee would be more fruitful.

n5 It is unlikely that a statute limiting the right of recovery on the personal obligation of the mortgagor will be applied unless the forum is in the state of the applicable law. See reporter's note on Restatement of Conflict of Laws, § 229 (1969).

n6 Presently, under Nev. Rev. Stat. § 40.459 (1968) a court cannot render a deficiency judgment for more than the amount by which the debt secured by the mortgage exceeds the fair market value of the property at the time of sale.

Wiles (talk|edits) said:

4 December 2013
See Discussion:IRS_Chief_Counsel,_"California_Short_Sale_=_Nonrecourse"

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