The loan for the new home construction has no wording regarding the existing house and there is no contingency where we are required to sell the old house. On the old house we currently owe about what it is worth so we have no equity in that property. We don't want to the old house to fall into foreclosure but if we can't get it sold before our new house is finished we have no way of possibly carrying both mortgages. We currently have an excellant credit rating and I know a foreclosure would damage that pretty severely. My question is if the old house does fall into foreclosure can the bank or state come after our new house?
2006-11-28 03:12:51 · 10 answers · asked by Robert K 1 in Business & Finance ➔ Renting & Real Estate
Without getting into the legals of it all.....I would NOT let it foreclose as you risk everything, house, credit, personal sanity.
If you can't sell it...do the next best thing...rent it out. Rent it for a year and then see how the housing market is next year to see if its possible to sell then. If not, continue renting it.
Might not make anything off of the rental today, might even take a slight loss each month on the rental, but this is 1000000% better than a foreclosure. Plus over time you'll have more equity and colateral as you'll own 2 homes.
Great item to have 10 yrs down the road when times get rough, you need money, want to move to an ocean front condo....you have that rental house you can sell off.
Friend of mine just built a nice 5200 sq ft home and then within a year is now divorcing. He is in similar situation, unable to sell the house. He is now renting it.
2006-11-28 03:18:24 · answer #1 · answered by Anonymous · 3⤊ 0⤋
The short is answer is yes. IF the old house falls into foreclosure and the value of it is close to the debt owed, there is a substantial possibility that when the bank sells it at auction, it will garner less thant he debt owed (because there will be default charges on the mortgage, court costs added and the costs of selling the premises as well as the debt owed). This "deficiency" will allow the bank to come after any assets you have to cure it--they will get a deficiency judgment against you and can attach any property you have--now the new house if it has a loan on it, may be safe if you have no equity--the first mortgagor has priority on it, but if you have any equity in the new house they can attach the house, sell it at auction pay off your mortgage and take any left over to satisfy their debt.
They could also file a lien for the deficiency against your new house, which means that the judgment they get earns interest (currently running at rates 9-12% in many places) and when you do have equity, they will sell that house from under you.
Of course they can also attach your salary (garnishment) which may mean you don't have enough income to pay the loan on the new house. They can freeze your bank accounts to seize money from them, which could cause you to incur late fees by missing mortgage payments too--so that would certainly effect the new house.
If you can't sell the old house, why not rent it out, at least for the value of the mortgage payment? You could then ultimately end up with a big asset to sell later.
2006-11-28 03:21:16 · answer #2 · answered by William E 5 · 0⤊ 0⤋
First off, your loan officer on your new home must not be very sharp. No surprise though, as using a builder's lender is the equivalent of using a public defender in court...
That being said, the underwriter -- the person who ACTUALLY approves your loan for the lender on your new home, will run a back-up credit report prior to the close of escrow. So, ya better start looking for some cash to keep your current loan current -- i.e., family, 401k loan, etc. BTW, how in heaven's name do you plan on paying for your impounds and pre-paids to close on your new house?
As for the aftermath, a foreclosure affects you credit for TEN years, (BKs's are seven years). The lending industry has no patience for someone who walks away from their home -- at least you can keep your home in a BK.
Also, it would be wise to look over the small print on page four of the final LOAN application that YOU will sign for your new home. It states that you may suffer criminal penalties and monetary damages to ANY person that may suffer ANY loss due to misrepresentations that YOU have made on the application, (Title 18 United States Code, Sec 1001, et seq). You are acknowledging this info, not the loan officer -- they are only signing as the interviewer. So LOOK at the application. Does your current home show as a "rental" or that it is a "pending sale"? Your income and assets correct? Better check now, because this can be used against you later in the event your current lender decides to investigate in the event of a loss due to foreclosure.
Now grow up and take responsibility for your situation. Sell your current house and bring in the proceeds to close -- use you "excellant" (sic) credit to beg and borrow if you have to. Rent for awhile, and then buy when you can properly afford it. With the current state of the housing industry, time is on your side. There should be no hurry to buy again in a depreciating commodity whilst simultaneously destroying your good credit.
I am not your friend and I don't know you from Adam, and in the end you'll surely do what you like. But you have the opportunity RIGHT NOW to unravel this mess and do what is right and honorable for you -- and your family. Best of luck.
2006-11-28 04:16:30 · answer #3 · answered by Patrick C 1 · 0⤊ 0⤋
Best Bet: walk into a mortgage office and ask the question. Most places offer substantial info on the matters of forclosure. Try to sell your home as soon as possible. A great place to list it is on EBAY. You don't want a forclosure on your credit because you will have to wait over 2 years to get a loan for a new home even with good credit. Even then it will be a blemish on your record for nearly 7 years. Do any repairs and updates to your home before you sell to get the maximum price. Good luck and Take Care.
2006-11-28 03:24:28 · answer #4 · answered by MariClaude 2 · 0⤊ 0⤋
a construction loan is different then a mortgage. if you let your first home go into foreclosure then you more then likely will not be able to get a mortgage on the second house and that will mean that you will have to come up with the money for it.
2006-11-28 03:17:18 · answer #5 · answered by george 2 6 · 0⤊ 0⤋
You have to be kidding. You really do want your cake and eat it too.
You will never get the loan for the new house, if you get foreclosed on your present home. The Banks,investors, lenders are not crazy to trust you.
Who would lend you money if they know for sure that you have no intention of ever paying it back.
2006-11-28 03:17:57 · answer #6 · answered by Anonymous · 1⤊ 0⤋
Letting something fall into foreclosure is nothing but irresponsible and pathetic. You are an adult. Take responsibility. Good lord! No wonder banqruptcy rates are high. Always taking the easy way out, some people.
2006-11-28 03:14:35 · answer #7 · answered by nottashygirl 6 · 1⤊ 2⤋
Don't EVER consider foreclosure. When they check your credit report just before closing your new note it will kill the deal if foreclosure is on it.
2006-11-28 03:17:18 · answer #8 · answered by Anonymous · 0⤊ 0⤋
no, but like what you said. it will damage your credit severely. house foreclosure is considered "credit suicide". in some cases its worst than bankcruptcy. youre excited to move in your new house, so youre not thinking straight, dont do it. make ends meet. sell the house for say 20k loser, then pay that 20k or roll it in your new house.
2006-11-28 03:20:45 · answer #9 · answered by gr 5 · 0⤊ 0⤋
Possibly. They may be able to seize it because it is your personal property.
2006-11-28 03:17:07 · answer #10 · answered by I know, I know!!!! 6 · 0⤊ 0⤋