What traps along the way can I expect?
A: If both loans were used to purchase the property, i.e., paid to the seller in escrow, then there are no traps, because you can simply walk away, and neither lender can touch you. If you refinance the 2nd at some time and the 1st is foreclosed, then the 2nd lienholder can sue you for a deficiency and attempt to collect by garnishing your wages, seizing other assets, etc. If the aggregate value of the loans is greater than $1,000,000 , then you will owe federal income tax on that additonal amount ($400,000 for Cal. State income tax).
Do I need a lawyer?
A: Bankruptcy attorney, maybe.
Do I need to file for bankruptcy as well?
A: If you refied a loan, then yes.
How much information should I give the bank?
A: None, unless they're offering you an unconditional release from further liability.
Your thoughts on short-sale, and/or deed-in-lieu-of-forclosure?
A: It's great for the real estate broker, because the bank pays the commission. However, without a liability release on the loans, a short sale or deed-in-lieu will create a deficiency on all of the loans against the property -- a sucker play for most seller, because they never get the release, and later find out they've been screeeeewed (pardon my French).
Hope this helps.
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