accountantwmp asked:
I am thinking about buying a much cheaper place and letting my current place get foreclosed to the bank. I know my credit would be damage, but can the purchase of a cheaper place get forced into foreclosure as well. What bad things would happen to me if I do such a thing?
I am thinking about buying a much cheaper place and letting my current place get foreclosed to the bank. I know my credit would be damage, but can the purchase of a cheaper place get forced into foreclosure as well. What bad things would happen to me if I do such a thing?
If the foreclosure liquidation of property #1 doesn’t pay off your debt, your lender has the option to sue you for the remaining balance, which includes going after your other assets.
Whether the bank can seek compensation beyond taking the house (including foreclosing on the cheaper place) will depend on where you live and the nature of your loan.
For example: In my state (California), all purchase-money loans secured by either a deed of trust or a mortgage are non-recourse, which means that the bank’s interest in the property is the ONLY security for the debt, and they cannot come after you through the courts to recoup the difference (this would be called a deficiency judgment). In other states, home loans secured by a trust deed are non-recourse (because foreclosures occur outside the court system), but home loans secured by a mortgage are recourse loans (because foreclosures occur through the courts; therefore, the court can award further judgment).
However, if you refinanced your home, that’s considered a hard-money loan because you used the equity in your house to obtain cash. I am not specifically aware of any state that would deny the lender the right to a deficiency judgment in this case (though I am of course not familiar with all state laws).