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Can Foreclosure On One Property Affect Another We Own?

Mark Cappel
UpdatedApr 3, 2024
Key Takeaways:
  • Foreclosure laws and anti-deficiency rules vary by state.
  • There is usually no link between an owner's two properties.

If a bank forecloses on one house, can it attach a home equity loan on that house to another we own?

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.

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." See the resource Anti-Deficiency to learn your state’s anti-deficiency rules.

Protecting your home with a short sale

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 Deed In Lieu Of Foreclosure vs. Short Sale.

How does foreclosure affect you and your second home

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 caused by the foreclosure.

Pro tip: Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

Protecting your other property with a bankruptcy

You may be able to rid yourself of the obligation to continue paying for 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 lawyer who has property law experience to determine the best course of action available to you to resolve this outstanding debt. To learn more about bankruptcy, visit the 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 do not 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.

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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.



Did you know?

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2023 was $17.503 trillion. Student loan debt was $1.601 trillion and credit card debt was $1.129 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Collection and delinquency rates vary by state. For example, in Arizona, 15% have student loan debt. Of those holding student loan debt, 9% are in default. Auto/retail loan delinquency rate is 4%.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.



DDebbie, Jun, 2020

I’m divorced. My ex-husband has let the house go into foreclosure in New York. He has filed bankruptcy. I’m remarried and my husband and I own a home in New Jersey. Can the bank of the first house come after my new home?

DDaniel Cohen, Jun, 2020

Debbie, I am not a lawyer so the information I share is not to be taken as legal advice.

If you are listed on the loan for the old house, then the unpaid balance on the mortgage is your responsiibilty regardless what your ex and you agreed to in the divorce decree. If the house sells for less than is owed, the bank can come after you and your ex. They would have to sue you and get a judgment against you.That would be done in NY. They would then have to domesticate the judgement in New Jersey. At that point, your income, bank accounts and assets are potentially targets for collection. If you are on the title to the house with your current spouse, the likeliest negative consequence would be a lien on the title. I think it highly unlikely they could force a sale of the home to collect.

mmaria, Sep, 2013
Hi, I bought a Florida condo in 2006 while I was single. And during the crisis of 2008-2009, i couldn't continue paying the mortgage and the bank started foreclosure procedures (just a few months after I got married) - I just received letter of the Final Judgment: the property will be put up for foreclosure sale in Dec. The amount originally owed was 120,000, with fees and interest, etc., the amount grew to $162,000. Even with today's improved housing market, that condo is not worth more than 60,000. My question is, what happens to the "deficiency"? - can they go after my husband's assets? (401K, his salary, etc). Can I go on bankruptcy without affecting my husband? - we file taxes jointly. I also own another smaller condo which is paid for and not worth more than 35-40K, can the bank take it to cover part of the deficiency? - We currently live out of state (in CA). Please advice. I'm really worried about ruining my husband excellent credit for my mistakes. I'm also pregnant and the stress is too much to bare. Thanks in advance for your help.
BBill, Sep, 2013
Good news first: It is common for one spouse to have a sky-high FICO credit score and the other spouse to have a low FICO score. Marrying a person with a score higher or lower than yours will not cause an averaging effect. In other words, there is no such thing as a "marital credit score."

Now the bad news: You mentioned you reside in California. California is a community property state. It is possible for an aggressive creditor to pursue you and your spouse for your separate, pre-marital debt. I want to qualify that by saying it's a legal possibility, and it's one most creditors are either unaware of or take the time and bother to pursue.

You can file bankruptcy separately without your spouse filing, too. My advice? First, consult with a Florida lawyer who has experience dealing with mortgage law. Florida permits deficiency judgments, but the law has a couple of twists regarding how the deficiency amount is calculated. After you learn how much of deficiency you are facing, your second step is to consult with a California lawyer who practices bankruptcy law. It's too soon to file bankruptcy, but it's not too soon for you to understand the pluses and minuses of filing bankruptcy, and whether bankruptcy is your best option.

One final thought: You are not alone in the situation you described. Tens of thousands of homeowners in Florida alone have gone or are going through foreclosure and its aftermath. Take the steps I suggested, and you will better understand your options moving forward, and perhaps breathe a bit easier.
KKevin, Feb, 2012
I live in FL I had several investment properties in SC. Those got foreclosed as I was unable to continue paying on them. I tried in vain to get the bank to accept the many short sale offers, renegociate the loan, lower the interest rate, etc. They refused to do anything. They forclosed and at the auction they bought back the properties for less than the short sale offers. I now have a final judgement against me. How does that work with an out of state bank and properties? What happens now?
BBill, Feb, 2012
First, read Florida Collection Laws to learn your basic rights as a Florida resident. Second, consult with a South Carolina lawyer who has experience in real estate law and litigating with mortgage servicers to learn what, if any, anti-deficiency laws apply in your situation. The fact that the servicers shot down short sale offers for amounts greater than the foreclosure sales prices may be significant.
LLeonovich, Dec, 2011
We are in the exact situation and a person asking the heloc question. We are in Tennessee and internet search gives me two different answers when I try to find out if TN is a non-recourse state or not. We got a letter from the bank we have a heloc with on the first home that we foreclosed we live in a different home and the bank states they are going to foreclose on it (second home has nothing to do with that heloc- can they?) Would you please be so kind to clarify? Greatly appreciate your advise.
BBill, Dec, 2011
See Tennessee Code Title 21, Ch. 1, Section 803, which discusses foreclosure and its aftermath. As I read the statute, Tennessee does not offer an anti-deficiency law. Readers: If my understanding of Tennessee law is wrong, please correct me below.

Consult with a Tennessee lawyer who has real property law experience for three reasons. 1. Learn if my interpretation of Tennessee Code Title 21, Ch. 1, Section 803 is correct or if Tennessee statute contains other sections relevant to mortgage deficiency balances. 2. The lawyer will review your HELOC and other loan contracts to learn if it has a right of offset. The right of offset would allow it to foreclose on Property B if you default on a loan secured by Property A. 3. Mortgage servicers make mistakes and foreclose on properties they should not. I am not stating with certainty that is the case here, but it could be. A lawyer experienced in litigation with mortgage servicers is necessary to fight a misguided servicer.

I realize a lawyer's time is not cheap. However, not consulting with a lawyer for a situation like the one you described would be very expensive indeed.