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Foreclosure On One Property Affect Another We Own - The Bills.com Blog
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Foreclosure On One Property Affect Another We Own
Thursday, Jul 9, 2009
Question: My husband and I have two homes. House No. 2 had a buyer with lease/option that fell through recently. We do not have the money to pay for two homes (rent will not cover mortgage). House No. 2 has a home equity loan attached to it. If we let it go back to the bank, can they attach the home equity on to House No. 1, the one we live in? We cannot sell House No. 2 for what we owe in this market.
Answer: If you allow House No. 2 to go into foreclosure, it is likely the amount received at auction will be much less than what you actually owe, which could leave you responsible for the difference, generally referred to as a "deficiency balance."One option that you may have to free yourself of this obligation without owing a deficiency balance is through a "short sale," in which the mortgage holder agrees to accept less than the balance owed on the mortgage at sale to prevent foreclosure. The lender would much rather see you sell the property than be forced to take the property through foreclosure, as foreclosure is a costly and time-consuming process.
Contact your mortgage lender to discuss what it can do to assist you in selling through a short sale, and what are its procedures and requirements. Explain to the lender that you cannot afford your mortgage payments, and that you need to sell the property through a short sale to prevent foreclosure. To learn more about this option, see A Deed In Lieu Of Foreclosure vs. A Short Sale
Foreclosure and Home Equity Loan
The answer to your question, and the best solution to your problem, depends greatly on your state of residence, as state laws regarding foreclosures and the enforcement of deficiency balances vary greatly from
state to state. Although some states restrict the collection of deficiency balances, most states allow deficiencies to be treated like all other unsecured debts.
If you end up owing a deficiency balance on House No. 2, it is possible that the creditor may file a lawsuit against you to collect on the debt. If the court grants the creditor a judgment against you, the creditor may be able to garnish your wages, levy your bank accounts and/or place liens on your property, including your primary residence, depending on your state’s laws relating to the enforcement of judgments.
Also, if you allow House No. 2 to go into foreclosure, you can expect the foreclosure to appear on your credit report for seven years from the date it is entered into the public records, likely resulting in significant damage to your credit rating and your ability to obtain new credit.
State laws related to foreclosure and the collection of deficiency balances vary significantly, so I strongly encourage you to consult with an attorney in your area as soon as possible to discuss the problems you are facing. Your attorney should be able to tell you specifically what action the mortgage company can take to collect the debt if it obtains a judgment against you for a deficiency balance, and what actions you can take to protect your assets and mitigate the damage
If you end up owing a deficiency balance on House No. 2, it is possible that the creditor may file a lawsuit against you to collect on the debt. If the court grants the creditor a judgment against you, the creditor may be able to garnish your wages, levy your bank accounts and/or place liens on your property, including your primary residence, depending on your state’s laws relating to the enforcement of judgments.
Also, if you allow House No. 2 to go into foreclosure, you can expect the foreclosure to appear on your credit report for seven years from the date it is entered into the public records, likely resulting in significant damage to your credit rating and your ability to obtain new credit.
State laws related to foreclosure and the collection of deficiency balances vary significantly, so I strongly encourage you to consult with an attorney in your area as soon as possible to discuss the problems you are facing. Your attorney should be able to tell you specifically what action the mortgage company can take to collect the debt if it obtains a judgment against you for a deficiency balance, and what actions you can take to protect your assets and mitigate the damage
caused by the foreclosure.
To learn more about foreclosure and the options available to homeowners, I encourage you to visit the Bills.com Foreclosure resources page .
Bankruptcy
You may be able to rid yourself of the obligation to continue paying on your second home by filing for bankruptcy protection. If you file for Chapter 7 bankruptcy, you may be able to surrender the property to the creditor and discharge any deficiency balance as part of your bankruptcy plan. However, you may risk losing that property as well, depending on your state’s property exemptions in bankruptcy. Again, I encourage you to consult with a qualified attorney to determine the best course of action available to you to resolve this outstanding debt. If you would like to learn more about bankruptcy, I encourage you to visit the Bills.com Bankruptcy resources page .
Many Americans are struggling to keep their mortgages current during the economic downturn, so please know that you are by no means alone in the difficulties you face. You don't qualify for the Making Home Affordable program because your issue revolves around a second home, but I mention it here for readers who struggle with similar issues on their primary home.
I wish you the best of luck in finding a workable solution to this problem, and hope that the information I have offered helps you Find. Learn. Save.
Best,
Bill
www.bills.com
To learn more about foreclosure and the options available to homeowners, I encourage you to visit the Bills.com Foreclosure resources page .
Bankruptcy
You may be able to rid yourself of the obligation to continue paying on your second home by filing for bankruptcy protection. If you file for Chapter 7 bankruptcy, you may be able to surrender the property to the creditor and discharge any deficiency balance as part of your bankruptcy plan. However, you may risk losing that property as well, depending on your state’s property exemptions in bankruptcy. Again, I encourage you to consult with a qualified attorney to determine the best course of action available to you to resolve this outstanding debt. If you would like to learn more about bankruptcy, I encourage you to visit the Bills.com Bankruptcy resources page .
Many Americans are struggling to keep their mortgages current during the economic downturn, so please know that you are by no means alone in the difficulties you face. You don't qualify for the Making Home Affordable program because your issue revolves around a second home, but I mention it here for readers who struggle with similar issues on their primary home.
I wish you the best of luck in finding a workable solution to this problem, and hope that the information I have offered helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by meena on Wednesday 2nd December 2009 15:01
my friend has a home in florida in her and her husband name but loan is on her husband name. they cannot afford the mortgage and want to let it go in foreclosure.Thay also have a primary residence in california which is in my friend name and loan is also in her name.Can the bank go after the assets of their home in california even though her husband name is not there.
2. Posted by Bill on Thursday 3rd December 2009 11:55
First, suggest to your friend that they consider a short-sale or deed in lieu of foreclosure before defaulting on the Florida mortgage and allowing a foreclosure. Second, Florida does not have an antideficiency law for mortgages, therefore the creditor can pursue the debtor for the deficiency balance. See Collections Advice for more information about the rights of creditors and debtors when collecting an unsecured debt.
3. Posted by samantha s. on Sunday 7th February 2010 22:42
WE LIVE IN NEVADA. I HEARD THAT FOR THE NEW LAW, THE BANK CANT GO AFTER YOU FOR THE DEFICIENCY JUDGMENT. WELL, MY PRIMARY HOUSE WILL GO SOON IN FORECLOSURE. BOUGHT IT IN 2004. LATER WE REFINANCED IT WITH CASH OUT WHICH WE USED FOR IMPROVEMENTS, POOL, ETC. THE NEW LOAN WAS INTEREST ONLY, 30 YEAR. AFTER MY HUSBAND ACCIDENT IN 2008 EVERYTHING WENT DOWN THE HILL. WE HAVE A 2ND SMALLER HOUSE, THAT WAS OUR PRIMARY HOUSE BEFORE 2004. WHEN WE MOVED TO A "NEW" HOUSE, WE RENTED, UNTIL 3 MONTH AGO. NOW WE WILL BE MOVING TO THAT HOUSE. THE LOAN IN THIS ONE ES FIXED, 30 YEARS, WE KEEP UP WITH THE PAYMENTS. NO PROBLEMS. NOW WE FOUND OUT THE LENDER OF OUR HOME, THAT IS, THE ONE THAT WILL GO IN FORECLOSURE IS THE SAME THAT THE OTHER SMALLER HOUSE. I WONDER IF THEY CAN PUT A LIEN IN THIS OTHER PROPERTY. WE ARE DESPERATELY, PLEASE ADVISE, SUE
4. Posted by Bill on Monday 8th February 2010 09:54
In comparison to California's anti-deficiency law, Nevada's law is quite limited in scope and protection of consumers who default on their mortgages. According to Nevada Lawyer, a publication of the Nevada State bar, "Under NRS 40.457 (the 'deficiency statute'), a court may not award the creditor a deficiency judgment following the trustee's sale until there has been a hearing to determine the 'fair market value' of the real property on the date of the trustee's sale. In no event may a creditor obtain a deficiency judgment against the debtor for a sum that exceeds the difference between the indebtedness and the fair market value of the real property on the date of the trustee's sale." Therefore, under Nevada law, the creditor may exercise a right to obtain a deficiency judgment, but the window for doing so is narrow. Regarding your final question, what you are asking is called the "right of offset." A right of offset -- in effect -- grants the creditor a private, contractual remedy if the borrower defaults. I would be surprised if they did. Review your mortgage contract to see if the mortgage servicer who holds your two mortgages has reserved the right of offset.
5. Posted by Susan on Sunday 21st February 2010 17:31
If you have two homes (both financed by the same bank) (one rental) and have to sell that one b/c you can't afford it anymore....can the bank force you out of your primary residence (which would not sell for it's value either)??
6. Posted by Bill on Sunday 21st February 2010 20:29
As I mentioned to reader Samantha above, I believe what you are asking about is called the "right of offset." A right of offset -- in effect -- grants the creditor a private, contractual remedy if the borrower defaults. I would be surprised if such language was in your mortgages. Review your mortgage contracts to see if the mortgage servicer who holds your two mortgages has reserved the right of offset. If you default and the bank forecloses on one property, the bank can sue you for the deficiency judgment if a deficiency is allowed in your state. If it can sue you for the deficiency, and you do not respond, the judge may allow the bank to put a lien on your other property.