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Roger
Roger, Lawyer
Category: Real Estate Law
Satisfied Customers: 25995
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by West
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We live in Minnesota, purchased our home at the height of the

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We live in Minnesota, purchased our home at the height of the market in our area 4 + years ago and are now struggling to make mortgage payments. We've talked with our mortgage company and they do not consider us a refinance candidate (we no longer have 20% equity in our home - we probably can't sell our home for what we owe on it) and we also don't qualify for any change in our mortgage due to circumstances.

We are current on our mortgage but I don't know how long we can keep that up. We would be willing to walk away from this home since it was such a bad business decision but wanted to understand the ramifications of doing something like this. Can you help?
Submitted: 4 years ago.
Category: Real Estate Law
Expert:  Roger replied 4 years ago.

If you walk away or stop making payments, the lender has the right to foreclose on the property. There's not a lot out there to help you if the lender won't do a modification and you can't refinance with another lender.

 

If you have resolved to leave the house, my suggestion would be to offer the lender a deed in lieu of foreclosure, which is a voluntary return of the property to the lender - avoids foreclosure. Also, if the lender accepts the deed, it cannot seek a deficiency judgment against you. The only catch is that the lender has to agree to this. Lenders usually will accept a deed if it believes it can collect most or all of the amount due on your loan from a private sale of the property OR if it believes the debtors have no way to pay a deficiency judgment.

 

If you are foreclosed on and the lender does not receive enough money to retire the debts, it can (and usually will) seek a deficiency judgment. Deficiency judgments are limited to the fair market value of the property less the unpaid balance of the loan that was foreclosed.

 

 

Customer: replied 4 years ago.
Could you explain a deficiency judgment - my guess is that means that the lender can go after our assets. What assets can they pursue? Can they garnish wages? We don't own our cars outright. Can they take our belongings such a jewelry?

What happens to our credit and ability to borrow money to send our daughter to college in the near future if we foreclose?
Expert:  Roger replied 4 years ago.

Sure. A deficiency judgment is a money judgment for the difference between what you owe the lender and what the foreclosure sale generated. For instance, if you owe $200,000 and the lender recovers $150,000 from the foreclosure sale, the lender would be entitled to a judgment against you for $50,000.

 

Once the lender obtains a judgment, it can garnish wages or your bank accounts. Minnesota Statute 550.136 and 551.06 governs wage attachment. The maximum part of an individual's disposable earnings for a pay period that can be garnished may not exceed the lesser of:

1. 25% of the disposable earnings, or

2. The amount of the disposable earnings that exceed 40 times the federal minimum hourly wage.

 

The portion of the defendant's earnings which are not subject to a wage garnishment are also exempt from garnishment for 20 days after they have been deposited in any financial institution, whether in a single or joint account. The burden of establishing that funds are exempt rests on the defendant using the first-in first-out accounting method.

Exempt property under Mn. law can be found here: http://law.justia.com/minnesota/codes/540/550-s37.html

 

A foreclosure and deficiency judgment will harm your credit and stay as a blemish for 7 years. It will affect your ability to obtain credit. As for your children, they can get student loans on their own without you co-signing (I know this from personal experience!!).

Roger, Lawyer
Category: Real Estate Law
Satisfied Customers: 25995
Experience: BV Rated by Martindale-Hubbell; SuperLawyer rating by West
Roger and 9 other Real Estate Law Specialists are ready to help you
Customer: replied 4 years ago.
Thanks for your assistance Adam. A couple of more questions - What if we foreclose and then the bank tries to sell our property - what if it takes a long time to sell? What will the lender expect from us during that time?

If we try to offer of deed in lieu of foreclosure would I need to have someone already lined up to purchase the home ? We definitely would be at risk of a deficiency judgment given our annual income (and ability to pay deficiency judgment) but we are still struggling to keep our heads above water. Would that mean that we basically need to find a way to get an offer on our home for mortgage or find a way to pay off the difference because we are going to be liable for that one way or another?

What happens if we start to fall behind on our mortgage payments - should we pay as much as we can each month or just put that money in savings so we have money to make amends in the end? I would guess that if we don't pay full mortgage amounts late fees and penalties are mounting. Is that too held against us when they come up with how much we owe in a deficiency judgment?

Thanks again for all your help.
Expert:  Roger replied 4 years ago.

Once the house goes into foreclosure, the lender expects nothing from you until after the sale (if there is a deficiency). You have a right to live in the house through foreclosure and actually after for the length of your redemption period (this time frame varies and should be in your loan documents).

 

If you offer a deed in lieu of foreclosure, you'd be deeding the property to the lender - who would also be the buyer. No need to have a buyer lined up.

 

Yes. If you're susceptible to a deficiency judgment, you should do your best to reduce your exposure.

 

You should pay what you can because it is going towards reducing the debt. However, as you know, if you are $0.01 short, the payment is considered late and the loan is in default. Usually, a lender allows a loan to go 4-6 months before foreclosing.

 

IF you don't make the full payment, it is considered late, and fees/penalties would be assessed.

Roger, Lawyer
Category: Real Estate Law
Satisfied Customers: 25995
Experience: BV Rated by Martindale-Hubbell; SuperLawyer rating by West
Roger and 9 other Real Estate Law Specialists are ready to help you

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