If I go into foreclosure. If my home goes to auction do I owe the amount of the loan remaining?
Or is it better to do a short sale..does this mean the bank will take whatever the home sales for as a settlement? I’m really confused but I got seperated and can no longer afford my home..what is the best options? Or is bankruptcy a solution? Although I heard with the new laws it’s not so easy anymore. I would still owe most of it. Is this true?
July 1st, 2009 at 2:38 am
In a foreclosure, they take the collateral you put up for the loan (house) and you’re even. The foreclosure goes on your credit record and pretty much destroys it for a long time.
You would RARELY be responsible if they can’t sell the home for what you owe.
Further borrower’s obligations:
The mortgagor is required to pay for mortgage insurance, or PMI, for as long as the principal of his primary mortgage is above 80% of the value of his property. In most situations, insurance requirements are sufficient to guarantee that the lender will get all his money back, either from foreclosure auction proceeds or from PMI.
Nevertheless, in an illiquid real estate market or following a significant drop in real estate prices, it may happen that the property being foreclosed is sold for less than the remaining balance on the primary mortgage loan, and there’s no insurance to cover the loss. In this case, the court overseeing the foreclosure process may enter a deficiency judgment against the mortgagor. Deficiency judgment is a lien that obligates the mortgagor to repay the difference. It gives lender a legal right to collect the remainder of debt out of mortgagor’s other assets (if any).
There are exceptions to this rule, however. If the mortgage is a non-recourse debt (which is often the case with residential mortgages), lender may not go after borrower’s assets to recoup his losses. Lender’s ability to pursue deficiency judgment may be restricted by state laws. In California and some other states, original mortgages (the ones taken out at the time of purchase) are typically non-recourse loans, however, refinanced loans and home equity lines of credit aren’t.
If the lender chooses not to pursue deficiency judgment—or can’t because the mortgage is non-recourse—and writes off the loss, the borrower may have to pay income taxes on the unrepaid amount.
Any other loans taken out against the property being foreclosed (second mortgages, HELOCs) are “wiped out” by foreclosure (in the sense that they are no longer attached to the property), but borrower is still obligated to pay them off if they are not paid out of foreclosure auction’s proceeds.
If you can sell the home for enough to cover your loan, the bank may allow you to do that.
A short sale is something the bank can choose to allow if the home can be sold for almost what you owe on it. They settle for that amount and you’re even without having a foreclosure on your record.
Bankruptcy would be something to discuss with a bankruptcy lawyer if you find yourself in more debt than you could ever handle when the smoke clears from all this. You’d want to know exactly where you stood and cover as many debts as possible with the bankruptcy. So… it would definitely be your last step if necessary.
July 4th, 2009 at 12:16 am
I am in a similar situation, bottom line from what i understand is that you can be held responsible for the left over amount from forclosure auction and short sale. Bankruptcy is a possible option, it is a little tougher than before, bottom line now depends more on your income and your debt level on wether you can file chp. 7 or 13. In a chapter 7 you will be cleared of the debt. Best advice, talk to an attorney that knows about both real estate and Bankruptcy.
July 7th, 2009 at 8:19 am
bankruptcy is a short term solution, and the bank can file to have the stay lifted. Also, you would have to file chapter 13 and make payments AND still pay your mortgage. Chapter 7 will not solve the problem. Only thing chapter 7 does is liquidate your assest, and then you have to get out of the home. Chapter 13 allows to stay. Only a temporary fix. Only works for about 3 months at the most. Then once you file, you can’t do it again for 10 years, and it stays on your credit for 7. Not a good idea.
Yes, you will still owe the money when the house goes into foreclosure. A judgement is filed against you. The difference between what the house sold for and what the judgement amount is..that is the portion you will be responsible for. Judgements stay on your credit for 7 years. And if the bank is really nasty, they can garnish wages.
You could try a deed in lieu…meaning that you can give back the deed to the house and you vacate, and the bank will be off your back. But that would depend on your state and a few other things.
You might be able to do a short sale, but it depends on the bank. Best thing to do is A) Try to fix the problem or B) try to sell the home ASAP.
ALso try this:
they help in situations like this, great program.
July 8th, 2009 at 1:31 pm
Equity is an important factor in deciding whether to seek a foreclosure by sale or a strict foreclosure. Generally, you should seek foreclosure by sale if you have a lot of equity in the property — in other words, if the value of the property is much more than the total debt.
In a foreclosure by sale, the court auctions off the property. If the amount that comes in from the auction is more than the total debt, then you get the difference (Remember, your total debt may include more than just the balance on the mortgage.)
Strict foreclosure is more appropriate if you have little or no equity. In strict foreclosure there is no sale. Therefore, in strict foreclosure you have no chance to collect your equity, if you have any. However, if you have no equity, then you would get nothing from a sale. Remember that in a foreclosure by sale, the cost of the auction, additional attorneys fees and appraisal costs will come out of the sale. Therefore, IF YOU HAVE LITTLE OR NO EQUITY IN YOUR PROPERTY, YOU SHOULD NOT SEEK FORECLOSURE BY SALE.
How the funds are distributed
First priority will be real estate taxes. If monies are available after taxes monies will go to the first mortgage then the second mortgage, third mortgage etc., etc. The next money will go to any lien holders or attaching creditors. This process will continue until all liens and encumbrances on the property are paid. If by some chance there is still money left over it goes to the former home owner.
In some cases the difference of amount owed and the amount recovered in a foreclosure sale may be subject to income taxes, as well as penalties and late fees. The same goes for short sales.
In the event a loss is taken by the mortgage lender, the outstanding balance owed by the borrower is treated as income and is included in gross income for that tax year.
In some states the lender can go after you for the balance of the debt!
I suggest that you get some foreclosure help on this from an attorney or approved group.
See:http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm or handyman.freeforums.org/index.php
July 10th, 2009 at 6:18 am
Bankruptcy will slow the foreclosure process, but might not stop it. You’d have to talk to an attorney about that.
A short sale will be less devasting to your credit score.
July 12th, 2009 at 10:59 am
If a Deficiency Judgment is filed, you will still be responsible for the difference between what you owe and what the house sells for.
Bankruptcy is never really a solution, contrary to what the ads say. With some time, I can show you the damage (and inevitable cost) that bankruptcy ultimately bears.
Loss Mitigation is another option. I am a Loss Mitigation Consultant and would like an opportunity to get a few more details regarding your situation so that you might have an opportunity to evaluate another additional solutions.
Please feel free to contact me directly, or visit
Don’t give up without weighing ALL of your options.
Wishing you the best!