Bob, Home Seller in Troy, MI

Hello, My house in Michigan is worth at least $150,000.00 less than what the loans are. I have two loans from the company, but they sold the first

Asked by Bob, Troy, MI Fri Jan 15, 2010

one (the bigger one) to Fannie Mae.
I moved out of state 6 months ago for a new job.
My new job is very well paying and I can afford the payments on my house in Michigan. However, I want to walk away from the mortgage because it's not financially sound.
If I do, can they go after me with a deficiency judgment?

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Patrick Thies, Agent, Anytown, IL
Fri Jan 15, 2010
The deficiency judgment depends on the state and the documents you signed. There are recourse and non recourse states and loans. Recourse means they can come after you within a certain time frame and non recourse means that they can not. Even in a recourse state, it is possible to get a non recourse agreement negotiated with the bank.

You should discuss this with an attorney who has experience in this area. Since you can not do a short sale, due to your income, this will most likely end up as a foreclosure.
1 vote
Patrice, , 48098
Fri Jan 15, 2010
Yes. Did you lose your job in Michigan then move out of state in search for a job?
0 votes
Derek Bauer, Agent, South Lyon, MI
Fri Jan 15, 2010

As someone local to your market I can tell you that ... it depends.

Michigan is a full credit bid rule, so ultimately it depends on what the house sells for at the foreclosure sale vs. what the balance was complete with fines, fees, and interest. That is just for the 1st ... the 2nd may very well issue a judgement. I must qualify this by saying I am not an attorney, and I can not and do not provide legal advice. If you would like to work with a local attorney, I can refer you to one.

Your job may pay you well, but you should still speak with an agent in your market who specializes in short sales. Foreclosures hurt EVERYONE, and so I try to help people avoid them at all costs.

Learn more at my website, a link to which is provided below.

Look forward to hearing from you. Enjoy your weekend...

Derek Bauer, Associate Broker / Realtor
Real Estate One - West Bloomfield
734.678.4745 - cell
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Alisha Chen, , Irvine, CA
Fri Jan 15, 2010
I know many homeowners feel that it is not fair when you purchase the home at a higher price and now the same model home next door is selling for much less than when you buy it for. However, a purchase decision was made by you at that time. If you don't pay, the lender looses so it is reasonable they will have to do something to cut down their loss. If you are financially sound, feel blessed...there are many homeowners out there want to keep their home but not qualified to. Real estate will come back one day...I don't suggest you just walk away, talk to your lender to see if you qualify for a loan modification to cut down your payments.
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Dp2, , Virginia
Fri Jan 15, 2010
Have you considered doing a loan modification or short sale?
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Keith Sorem, Agent, Glendale, CA
Fri Jan 15, 2010
Your mortgage is not financially sound? Sounds to me as though you simply want to walk out on your commitment. If your home increased in value by 20% would you want to give the money back? Of course not.

I encourage you to be responsible.

Please read this great WSJ article regarding implications. I was in the same boat as you. I kept the property as rental for 18 years and made a ton of money when I sold.

Only a desperate person sells at the bottom of a market. In your case, you probably will not qualify for a short sale because you have prove that you are insolvent and cannot pay your bills.

I'll bet you have not completed your taxes to assess the tax implication of having the property as a rental. You might want to talk with your CPA.
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Shirley Coro…, Agent, Clarkston, MI
Fri Jan 15, 2010
Hi Bob,

Congratulations on your new job. I know what a hassle it must be to have hanging over your head the home back in Michigan which is clearly "underwater" in its value. However, please consider other options before just walking away from the two mortgages.

The straight answer to your question is that it may be very likely that the lenders may, in fact, pursue a deficiency judgement to recover their losses at some point in the future after a is certainly their option. Not to mention the extreme and negative impact to your credit record for many years to come.

You have other options, though. You might consider leasing it while you ride out the downturn in values. Being out of state, I would recommend that you use the services of a property management company to remove the hassles of being an out-of-state landlord. You might discuss with your primary lenders the possibility of deed in lieu of foreclosure. You might also consider pursuing a short sale which would require agreement by your lenders but involves putting the house on the market for sale at a price as close to market value as possible but obviously well below the amount that is owed. Short sale is a long and tedious process; however, if the lenders are willing, it is a far better option than foreclosure.

Please contact me if I can provide additional assistance. Best of luck to you.

Shirley Coronado
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Robert Pratt, Agent, Chicago, IL
Fri Jan 15, 2010
Yes they can absolutely go after you for a deficiency judgment unless you get a lawyer to draft an addendum to wave it and they agree to it. It is also recommended that you have your attorney look into any way that you can get out of being taxed for the deficiency amount. It is common for the government to tax the amount that a borrower was forgiven as taxable income which, depending on the amount can be quite a sum and bump you up into a higher tax bracket. Your best bet is to get an experienced attorney who has worked on short sales and foreclosures.
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Bob Movin-On, , Hartford, CT
Fri Jan 15, 2010
Yes, and why would you want to destroy your credit and your life? Do you realize what foreclosure does to a person? Your credit score will take a major hit, as much as 300 points, and the foreclosure stays on your record for 10 years. You will not qualify for another mortgage for 5 to 7 years and you will need to answer that nasty question they ask on every credit app "have you ever been foreclosed on", many think that because it is not on their credit report any more that they do not need to answer yes to that question but it is a felony to lie on a loan app so you need to answer yes leaving the underwriter an opening for further inspection. Do not just walk away sell at a loss or short sale and work out a deal with the bank. Good Luck Bob
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Cathy Tishho…, Agent, Birmingham, MI
Fri Jan 15, 2010
The main thing is that it will damage your credit for many years. If you can prove hardship - which sounds unlikely if your new job "is very well paying & you can afford payments" - they a short sale is the best. They can definitely come after you if they decide to but there are so many deficiencies out there, it is still uncertain how banks will handle it once the market improves. We had an attorney speak at our office meeting some time ago and he said he expects banks (at some point) to turn these over to debt collectors. He said that if it goes to sheriff's sale and they record the sale for the amount of the debt, then technically it is considered complete. However, he was predicting that more and more banks were going to list the amount on sheriff's sale for the market value and then they can come after the balance. This scenario only applies to the first position loan- the second is still out there and they could come after that amount. My office partner just did a short sale and the second loan made them sign a promissory note. Sound like your best best is to lease it until the market improves so you can cover your mortgage payments.
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Ron Ristovski, Both Buyer And Seller, Troy, MI
Fri Jan 15, 2010

You can try loan modification. Sometimes when you tell the bank that you are considering short sale, they would give you documents that you fill in and they would change the rates to say 4% for 30year fixed or so. We did for one of our customer like this recently. Good luck.

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