foreclosure, bankruptcy and liability - Posted by rayrick

Posted by raelynn mitchell on May 23, 1999 at 22:31:05:

I was under the impression that the deficiency situation and whether or not the bank would pursue it all depended on whether the loan was a purchase money RE loan or a 2nd/3rd/or refinance/etc. Some states have laws that say yes, the owner’s deficiency can be pursued after the sale, others have laws that say no, and some may generate a “maybe” or “it depends”.

I’m not well versed in foreclosure law, however, and as you mentioned, the bankrupcy may change things.

Other things in the equation could also be:

Is it HUD or VA (if it is, bank goes to HUD/VA and says “pay us” and gets their money that they are short from the foreclosure sale direct from the gov’t.)

The language in the mortgage loan and if it was “personally guaranteed” or if assets other than the home were pledged (as in a blanket mortgage).

I had been told in the past that bankrupcies were a good place to get properties because, like in your situation, so many people do NOT know the answer and how the bankrupcy changes things, so those who DO know have little if any competition.

But as you may know, I’m not an expert in foreclosure law. Still learning more every day.


foreclosure, bankruptcy and liability - Posted by rayrick

Posted by rayrick on May 23, 1999 at 16:12:02:

I’ll start this post by noting that I have TONS to learn about foreclosure law. I know almost nothing, and that is becoming an increasingly severe liability in my RE investing efforts. Gotta do something about that pronto…

Now my question- consider the following scenario: a seller owes 100K and gets foreclosed. Bank auctions home and gets 85K for it. What exactly is the seller’s financial liability here? Do they still owe the bank 15K? Can the bank do nasty things like garnish their wages and such to obtain said funds? Obviously you can’t get blood from a stone and if the people were in dire enough straits that they got foreclosed, they’re not going to be coming up with 15K any time soon. Can the bank hound them to the end of their days to gradually get that money?

Now contrast this with a BK. Seller lists bank note on home as part of the bankruptcy filing. Are they better protected from future financial liability under this scenario? Would the above 15K shortfall be written off here whereas it would not under a regular foreclosure?

Thanks a bunch. Just lost my first deal because my sellers are filing BK tomorrow. Aarrrgh!