I own two homes & may foreclose on one...Can the lender on the foreclosure come after my other home/assets?

Asked by Nbm02ws6, Phoenix, AZ Fri May 1, 2009

My wife & I purchased a home about 4 years ago & we are extremely upside down w/it. We purchased another home about 6 months ago & have been making both mortgage payments on time. The lender on the first house will not discuss a short sale or loan modification since we've never been late with a payment. Can that lender come after my primary residence (newer home) if I decide to walk away from the mortgage on the older home & allow the bank to foreclose? Is this covered under Arizona's anti-deficiency laws?

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Robert G Hertzog Jr’s answer
Robert G Her…, Agent, Phoenix, AZ
Thu May 14, 2009
As you can see, the Anti-Deficiency Laws in Arizona can be interpreted many different ways, by many different people. The bottom line is, you need to hire an experienced Real Estate Attorney to get an opinion.

The decision to sue for deficiency is handled on a case by case basis for each lender. From experience, I can tell you that they look at investment property differently, primarily because 90% of people that took a loan for the purchase of a home checked the box that says they planned on living in the home as their primary residence. I assume that you lived in the home until you purchased the 2nd home 6 months ago.

Another thing to be cognizant of is that your lender on the 1st home will want to know why, being so "upside-down" on your first home, did you go out and buy a 2nd home 6 months ago? Many homeowners, when faced with losing their home and damaging their credit, are running out and buying less expensive homes before their credit is damaged by either a short sale or foreclosure. Once they have secured their 2nd home, they stop making payments on the 1st home and hand it back to the lender. The banks are on to this, and they are coming after those who are doing it. Their argument is, "Not only did you have enough for a down payment on the 2nd home, but you felt like your income would support two homes. Why should we take the loss, or accept a Short Sale"?

Like I said before, your next move should be decided with a qualified attorney and a reputable Real Estate Agent that is experienced in Short Sales, if this is the route you decide to take.
0 votes
Robert G Her…, Agent, Phoenix, AZ
Wed May 13, 2009
Which home are you currently living in? The reason I ask, is the Arizona Anti-Deficiency Laws don't protect investments, only primary residences. I specialize in helping homeowners with short sales, and this issue comes up on a regular basis.

My main concern is what my clients put on their original loan application. If they stated that they intended to live in the home as their primary residence, and their real intention was to purchase the home as a rental/investment, then the possibility of fraud comes into play.

If your transaction isn't handled by a qualified Realtor who specializes in Short Sales, as well as a good Real Estate Attorney, then you will more than likely have a situation where the bank comes after you for a deficiency judgement. That judgement could be placed against the current home you live in.

In situations like yours, we typically ask the bank to waive any future right of deficiency judgement in exchange for a succesful short sale (IN WRITING!). Remember one thing...YOUR LENDER DOES NOT WANT YOUR HOUSE BACK! The typical foreclosure will cost the lender anywhere from $30k-$80k. If they can get out of the deal with a short sale, they will.

Our website, http://www.foreclosureuturn.com , goes over the very same options you are considering. Feel free to visit, or you can call me at anytime.

Thanks!
0 votes
Dp2, , Virginia
Mon May 4, 2009
Although exploring your options might be a good thing to do, you might find that several of the options presented below won't work for you--because you're dealing with a non-owner occupied property. Check out the information anyway, because you might might stumble upon new programs and/or legislation that may apply for you and your situation.

The advice provided below concerning the foreclosure related costs is missing another one: the permanent hit that your credit rating will take. Although foreclosures will be reported on your credit report for a certain number of years (7--I think), they're part of the public record and many job, loan, and other applications ask whether one has ever been foreclosed upon or filed for bankruptcy.

You'll have to determine for yourself whether the advice to rent your 2nd property will meet your bottom line. As an investor, I suspect you purchased your "extremely upside-down" property at a price such that it won't generate a positive cash-flow with current market rent. Although any rent collected would offset the amount that you currently pay for that mortgage, you still might be able to rework this situation to make it work better for you financially. A loan modification or short-sale is still one of the keys to make this work. Your exit strategy will determine the order of the transactions, and with a little creativity you might turn a profit--unless you do a short-sale.
0 votes
Yvonne Boute…, Agent, Phoenix, AZ
Sun May 3, 2009
Hiring an attorney to negotiate a loan modification can be an expensive proposition, possibly costing thousands of dollars. It isn't something that many homeowners feel they can afford right now. When you take a closer look at the numbers, however, the cost of a loan modification compared to the cost of foreclosure is a pittance. The Joint Economic Committee of Congress puts the price tag at an estimated $151,000 (!) in foreclosure fees, broken down as follows:
Homeowner: $7,000
Lender: $50,000
Local government: $19,000
Impact on neighboring home values: $75,000
TOTAL ESTIMATE = $151,000

I would avoid a short sale at all costs, they are a nightmare (see my blog for more info). Here are some other resources that may help you:

Arizona & Maricopa County
• Arizona Mortgage Trouble Assistance line: 877-448-1211
• Office of the Arizona Governor: http://azgovernor.gov/
• Arizona Foreclosure Prevention Task Force: http://www.arizonaforeclosuretaskforce.com/
• Arizona Department of Housing: http://azhousing.gov/
• Neighborhood Housing Services of Phoenix, Inc: 602-258-1659 & http://www.nhsphoenix.org/
• Arizona Foreclosure Help-Line: 877-448-1211 & http://www.housingaz.com/ShowPage.aspx?ID=248
• Maricopa County Community Legal Services: 602-258-3434 or 800-852-9075 & http://www.clsaz.org/
• Association of Community Organization for Reform Now (ACORN) Housing Corp., Phoenix: 602-253-1111 or http://acornhousing.org/index.php
• Arizona Department of Financial Institutions/Foreclosure Help: http://www.azdfi.gov/foreclosure/Intro.htm

National Assistance
• Guide to Avoiding Foreclosure: http://www.hud.gov/foreclosure/index.cfm
• Field Guide to Foreclosures: http://www.realtor.org/library/library/fg329
• Acorn Housing Home Equity Loss Prevention program (HELP): 888-409-3557 & http://www.acornhousinghelp.org
• Homeowner Affordability and Stability Plan: http://www.financialstability.gov
• Help for America’s Homeowners (the Federal government's new program to assist existing homeowners stay in their homes): http://makinghomeaffordable.gov/
• Homeowner’s HOPE Hotline: 888-995-[HOPE]4673—24 hours a day/7days a week & http://www.995hope.org/

If you have other questions or need to contact me, my info is below:
Yvonne Boutell
Prudential Arizona Properties
3200 E Camelback Rd, Suite 103
Phoenix, AZ 85018
Mobile - (480) 200-6008
yboutell@cox.net

You might also think about trying to rent the home you are no longer living in -- lots of people need rentals right now, due to all the foreclosures. Good luck with your renegotiation! Yvonne
0 votes
Dp2, , Virginia
Fri May 1, 2009
I agree with Carlos: you should consult with an attorney on this to be 100% sure. Also keep in mind that your lender might not be based in AZ, so they might not know the AZ laws. Additionally, some lenders will take action against someone--expecting him/her to settle--whether or not they have a case, because they expect most people to panic after having been served a legal notice.

I also agree with Benjamin that you should begin the process for a short sale right now, and you don't have to be at least 30 days late anymore (as a result of the housing-related portion of the Obama stimulus plan). Also, you still have other options even if your lender is unwilling to talk with you. For example, you can shop your scenario around with several mortgage brokers. You might qualify for a loan remodification, and it's posssible that an attorney working with that broker might uncover various idiosyncracies with your loan that s/he may leverage to force your lender to negotiate with you.

You should look up David Chamberlain here on Trulia. He's a mortgage broker who is knowledgeable, and will tell it like it is. Although I don't know if he can do loans in AZ, I'm sure that if he can't, then he'll be able to connect you with someone who can.
0 votes
Carlos Ramir…, Agent, Mesa, AZ
Fri May 1, 2009
The answer is that it will depend on many factors. To be 100% sure your best bet will be to consult a real estate attorney. Even on the cases where the loan is supposed to be protected by the anti-deficiency law I have seen lenders go after the owners and their assests/wages, at the end the lender might (or might not) loose the battle, but it will still create a lot of headaches and expenses to the seller. Be well informed before making a drastic decision.

If you finally decide that you are not going to keep the property, then try to do a short sale - which at the end will be a settlement with the lender(s). You might need to start doing it after you are at least 30 days behind on your payments, but it will be a less hurtful alternative to foreclosure.

Good luck!

Carlos J Ramirez, PC, ABR, CNE
Associate Broker, HomeSmart -
http://www.SmartAZRealty.com
Web Reference:  http://www.SmartAZRealty.com
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