California Refinance - Implications

In California, when you buy a primary residence, the loans obtained at the time of purchase are referrred to as "Purchase Money Loans" and deemed NON-RECOURSE DEBT.

NON-RECOURSE DEBT
Non-recourse debt means the bank can not go after any of your other assets if the secured asset isn't sufficent to pay off the debt obligation. That's a very good thing! They can't take you to court over any deficency.

A 1st or 2nd loan can both be purchase money non-recourse loans as long as they are for your primary residence.

However once you refinance these loans they become recourse loans. Now if you default you may become personally liable for any deficiency. On top of that you could be liable to recognize income on cancellation of debt.

Kenneth L. Andrews, attorney at law has written a number of articles that do a great job explaining what the implications to you will be on a short sale or foreclosure.