Dec
Pre-Foreclosure Walkaways
From AP
Mortgage law experts say the incentive to walk away from a home loan is highest in states that have anti-deficiency statutes, which prohibit lenders from suing borrowers for additional funds after foreclosure.
Anti-deficiency statutes have been a recent topic of discussion with many borrowers wondering whether their lender has the right to come after them for any losses the lender may incur due to a potential foreclosure. While it seems a simple subject, the answer isn’t always clear by determining which state the property is located in. The AP reports anti-deficiency states as:
The full list: Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah and Washington.
California limits deficiencies to non-purchase money loans, which means if there’s been a refi after the original purchase, that lender of the new loan can seek a deficiency. But, if the lender uses a Trustee Sale rather than the much longer timeframe for judicial foreclosure, they’ll be limited by the one-action rule to collect only what they can at either the public auction or from selling the property post-foreclosure. The big gray area is second loans. When a first loan forecloses, junior loans are wiped from the property title, but the loan still exists as a borrower obligation. Bankruptcy can reduce or wipeout unsecured loans, such as a junior loan that is now unsecured, so there really doesn’t seem to be much incentive for a lender to spend more “good” money to attempt collection on an unsecured debt that can be readily dismissed.
The bottom line really amounts to what will make sense for the lender. A “walkaway” with assets in the bank and a significant income is a much more likely candidate for the lender to seek recovery, a borrower without significant funds and not enough income to continue making mortgage payments probably has nothing to worry about. The phrase “Squeezing blood from a turnip” seems appropriate.
If you have no assets, no job period, and a lender can’t come after you because he finds no gains – Will you have bad creidt references for how long due to a foreclosure ?
January 27th, 2009 at 6:58 pm@cookie
Foreclosure is reported for 7 years on a credit report.
January 27th, 2009 at 7:34 pmCredit re-establishment (paying all bills on time) will get your credit fairly decent in two years or so, a new home purchase can be accomplished 3-4 years down the road assuming you’ll have some down payment saved.
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February 9th, 2009 at 7:27 amI walked away from my home after my spouse died. I could not keep up. The last payment was January 2007. I looked up records and this home sold July 2007. I tried to sell, but was unabled. I tried Deed in lieu, and was denied due to a Federal Disaster loan, I am currently paying back. Since the house is sold, can I have this debt removed off by credit. It sold for more than I owed?
June 28th, 2009 at 6:45 amSouthfield You should be able to get a check for anything over what was owed. Your misfortune should not be their gain..
October 12th, 2009 at 6:56 pm