By Gary M. Singer, Sun Sentinel –
QUESTION: I own a couple of rental properties out of state in addition to my primary home, which is worth less than I owe. I may have to let it fall into foreclosure, but can the lender get at the equity in my rentals?
–Jenifer
ANSWER: Yes. If your lender forecloses on your “underwater” home, the bank may be able to get a judgment against you for the difference between what you owe and the value of the home. Your lender can record the judgment in the public records and create a lien against your other properties in Florida. The bank can even “domesticate” the judgment in other states and use the domesticated judgment to get at your properties there.
Once the lender has a lien against your property, it may be able to foreclose that lien and have the property sold in order to pay off the judgment, with any remaining money from the sale going to you. Further, the bank also can use the judgment to try to collect the money owed by garnishing your wages, taking the money from your bank accounts or even taking personal property, such as a motorcycle or stock certificates.
Of course, there may be protections to the homeowner that vary by state. For example, it’s very difficult to garnish the wages of the primary wage earner for a household with children or to foreclose on your homestead property. It would be much better to avoid all of this hassle by negotiating a smaller settlement with the bank or seeking a short sale or deed in lieu of foreclosure.
Q: I’ve sold my condo in a short sale, and the lender is requiring me to contribute $1,300 at the closing, which is next week. How can I be sure that this contribution is the only money that I will owe and the lender will not come after me for the rest?
—Rebeca
A: You need to carefully read the short sale approval letter to make sure of its terms. The letter should specifically say that you will be released from all further liability.
The majority of approval letters I have seen are not particularly clear on this issue. Some will only say that the mortgage is being released, which does not necessarily mean that you are free from monetary liability. Some letters seem more conditional, saying that you will be released if the investor who owns the mortgage clears some hurdle out of your control. Some letters just talk around the issue. Some lenders will clarify the terms at your request, but many times the homeowner won’t get a definitive release and will have to hope for the best.
