Foreclosure
Question: What, exactly are the consequences of foreclosure? >I was recently presented with a scenario that I didn’t have an answer for: >Imagine a family that owns a house and a rental unit. They have good
jobs, nice cars, and plenty of credit cards (in other words, great credit). Now suppose that their rental unit goes bad in a way that leads to it being foreclosed upon, and the family can’t do anything to avoid that.
>What would happen to them? >Would their credit cards be taken away or canceled by the issuing banks
when the foreclosure went on their credit record?
>Would their cars be taken away? >Could their primary home be taken away? >Basically, what are the differences between a foreclosure and a bankruptcy? >Any leads on where to research this issue would be appreciated.
Answer: It depends on what happens next. If the sheriff’s sale of the rental unit did not net enough money to pay off the mortgage, the bank (or mortgagee) can sue the former owners of the rental unit for a deficiency judgment (the money still left owing). If there’s a deficiency judgment, then the bank (mortgagee) can levy on the cars, if they’re not exempt under the law of the state governing the property that a judgment debtor can keep. The deficiency judgment generally becomes an automatice lien on any other property in the county, so if the primary home is in the county, then there can be a lien against that home. Then the bank (mortgagee) can force a sale of the primary home, if the state’s laws regarding judgment debtors do not protect the homestead (many states have these laws & the primary home would not be at risk).
As far as the credit cards, I haven’t heard of credit card companies taking cards away just because of a bad credit report, although I suppose it could be happening. Mostly they revoke credit only because of nonpayment on the cards & take a long time to actually revoke credit (they like the interest the credit card holders pay when they pay only minimum payments & the interest accrues).
Also, if there is a deficiency judgment the wages of the judgment debtors can be garnished (which probably be the first action the bank [mortgagee] would take because it’s easiest). Most states protect some income from garnishment, but it can be as low as only protecting minimum wage.
I’ve been careful to talk only about judgment debtors. It depends whose name in the family was on the rental property ownership & mortgage as to what property/wages can be levied/garnished.
As you can tell, this can be pretty complex. You can go to the library & look up resources on credit/debt, mortgages (Reader’s Digest has a book out [it may be pretty old], Consumer Reports may have something also; there are a lot of other legal guides out). But, because the facts of the situation can change the answers & so much depends on exactly what the facts are, books may be too general for the specific questions. I know there’s a reluctance to go to attorneys, but a minimal investment in an advice session with an attorney now can avoid a lot of lost wages or property later, perhaps. And, the family would have answers that would apply to exactly the situation they have. Likely, they would be told to make arrangements to pay off the debt, if there’s a deficiency judgment lurking out there that could adversely affect their lifestyle. If they have nothing to fear, they would find that out, also.
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