Can old lender come after my new house?

Question

My house payment is one week late now. I cannot pay anymore - my buisness is gone, there is now income. So, I bought a cheaper house with the last of my savings, so I'll be moving in with equity and affordable payments.

My question is if this doesen't sell for what I owe and we have to do a short sale or it forcloses, can my old lender take my bank account, or put a lien on my new house?

If so, how do I get around that?

There was no fraud involved, and I live in California, south of LA.

I went to a lawer and they only handle people who want to keep their house. But I can't afford these payments anymore.

Answer 1

OK, here are some facts:

When you purchased the first home, you signed two items, an IOU (note) and a security interest (lien). The note is your promise to repay. The lien allows the lender to go after the home to satisfy the note if you do not repay as agreed upon.

Neither document gives the lender any right to put a lien on anything but that specific home. But read on...

If you sell short - that is for less than what you owe the bank - you will be unable to repay the loan in full with the proceeds. Let's say you owe $100,000 and sell for $80,000. That means $20,000 of the note remains unpaid. Nothing in the note forgives you from owing that money. You still owe the money. It's just that the lien is now worthless because the property is gone.

If there is a lien for $100,000, you will be unable to sell the home for $80,000 without the lender's permission. The loan cannot close with unfulfilled liens. You would need to negotiate with the bank. In these negotiations, the bank may forgive the additional $20,000. In this case, the loan is done, and you move on with a big ding on your credit for seven years.

If the bank does not forgive the amount, you're still on the hook for $20,000, but it is an unsecured debt.

As for the new home, the only liens that can be placed on it are those allowed by contract you've signed or those allowed by law. What's allowed by law? Workmen liens, which allow someone who did work on your house to place a lien for any unpaid bills, and judgements. So if your lender gets a judgement against you for the unpaid $20,000, they may then put a lien against your new home.

The lender on your current home may also require that you give them a lien in the new home as a condition for letting you sell the old home, which would be lien by contract. But this is very unusual. The most common way the lender goes with a short sale is with a complete release. They do this because in the alternative, foreclosure, the bank would walk away with less money than if they work with the borrower on a short sale.

Hopefully this explanation of the process will help you understand your current situation.

Good luck.

Answer 2

The rights of the lender to recover a short fall varies based on the state (in the US), the way they foreclose and if there was any fraud involved when the loan was taken out.

A lot more info would be needed for a precise answer.

Consider spending a bit of money on a lawyer.

Answer 3

i think you should have your real estate attorney read your mortgage. but i do think that you are going to have to pay the difference between the sale price and old mortgage, if the house sells for less than the mortgage--due to the fact that the mortgage is secured with your promissory note. the promissory note guarantees the lender that you will pay the full amount of the mortgage.