Need Info on Financial Liability after Foreclosure
Question: At this point, what I would like to know is what kind of financial >>liability I face when the bank forecloses on me. Let’s say the bank sell >>the condo for 90k: > – Am I responsible for the difference, 30k? > – Would the bank pursue deficiency judgement? > – If I do get deficiency judgement against me, what does that mean? > – What else should I consider? >You would be responsible for the $30k difference PLUS >legal/administrative fees incurred by the bank.
Answer: I have a condo in Long Beach, CA, w/ about 120k mortgage and appraised at about 100k. The condo has become a financial burden for me, especially because I can no longer live there due to job relocation, and I am thinking of defaulting on the mortgage.
I disagree. However, it depends on the type of loan.
I quote from “CA Real Estate Law” by Theodore H. Gorden:
“Example: The amount due on a deed of trust was $63,000, and the property foreclosed to satisfy that amount brought only $55,000 at the trustee sale. The lender is still owed $8,000. However, if the deficiency resulted from foreclosure of a PURCHASE MONEY deed of trust, no deficiency (recovery against the borrower) is allowed.
RESTRICTIONS ON DEFICIENCY JUDGMENTS
A deficiency judgment is never possible for a deed of trust foreclosed by a power of sale (trustee’s sale) . However, a deed of trust foreclosed like a mortage (by court action), and a mortgage, permit a deficiency judgment (action against the debtor personally) if they are NOT purchase money instruments.”
To summarize the legalese: If you got the loan when you purchased the property, the lender CANNOT obtain a deficiency judgment.
If you refinanced, the lender MAY go to court, however, I have only seen that once. It involved a commercial property with fraud by the borrower. Chances are about 1 in a 1,000 that a lender would pursue a court action.
On my non profit WWW Real Estate Links page http://www.bayhouse.com/np/re-links.html is a link to
“The Brookfield Economics Institute explanation of the differences between trust deeds and mortgages as well as a description of the foreclosure process.”
It’s a great article and a MUST read for anyone interested in real estate and mortgage investing. As per my above comments, most likely there will be no judgment. As I previously posted, lenders agreeing to a short sale, will sometimes report the account as “settled.” In a previous post I asked for feedback from mortgage experts with regards to the effect of this “settled” mark on the credit. Unfortunately, nobody replied. Apparently there are no mortgage experts reading in this newsgroup or I missed the post.
If ANYONE has access to underwriters and cares enough to find out, please post here and E-mail me how the “SETTLED” notation on the credit will effect the borrower’s ability to get a mortgage. I suggest you try to negotiate with your lender. What is the rental value? Is it rented now? For how much? Maybe you can get the lender to lower the rate to reduce the negative cashflow.
If you can’t get that done, and the negative it too much for you, try for a short sale. Don’t just stop making payments. Get an agent EXPERIENCED with short sales. It will keep the foreclosure off your credit. The cash at hand may be a problem. But the lender would be foolish to not agree to a short sale, as they’ll lose a lot more if they do foreclose. Lenders greatly differ in their policies, and change from day to day. Don’t worry about “the right thing to do.” The lenders don’t, why should you? Lenders have rights according to the deed of trust, and so do you. Lenders don’t even blink when it comes to making a buck, no matter who gets hurt. Don’t lose any sleep over the “poor lender.” Nobody is going to go hungry because you don’t make your mortgage payment.
DO consider what you want to do for the next 5 years. Does your credit rating matter? How much? You got cash in the bank, and there are alternatives to owning.
Consider the tax consequences before you decide what to do. Boston Harbor and other companies claim to avoid the tax on debt relief. I don’t think they are legitimate.
Sorry this got so long, but some things are just a little more complex than 5 lines in a newsgroup.
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